Merck Kgaa · XETR:MRK
Merck Kgaa — FY2018 Earnings Presentation
48 slides from Merck Kgaa's earnings presentation, Mar 7, 2019
Slide 1: A Year of Investments and Delivery on Guidance
A YEAR OF INVESTMENTS AND DELIVERY ON GUIDANCE Merck FY 2018 results Stefan Oschmann, CEO Marcus Kuhnert, CFO March 7, 2019
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: Disclaimer
Disclaimer Additional Important Information and Where to Find It This communication does not constitute an offer to buy or solicitation of an offer to sell any securities. This communication relates to a proposal which Merck Group has made for a business combination transaction with Versum Materials
Slide 4: Agenda
Agenda Executive summary Strategic review Financial overview Outlook and guidance 4
Slide 5: Executive Summary
OO} executive summary RPAQGRTK
Slide 6: 2018 Highlights
2018 Highlights Healthcare – Solid organic growth of 5.2% driven by resilient core business with 3% ® ® organic growth and significant contribution of €160 m from Mavenclad and Bavencio Operations Life Science – Above-market sales performance across all businesses Performance Materials – Positive or
Slide 7: Guidance delivered
Guidance delivered 2018 Guidance 2018 Results Net Sales €14.4 – 14.8 bn €14.8 bn EBITDA pre €3,700 – 3,900 m €3,800 m EPS pre €5.00 – 5.30 €5.10 Net financial debt / <2x 1.8x EBITDA pre 7
Slide 8: Organic growth in all regions
Organic growth in all regions Regional breakdown of net sales [€ m] Regional organic development Europe +4.9% • Solid growth in Europe reflects ongoing org. strong demand in Life Science; Strong ® ® Mavenclad ramp-up offsets Rebif decline 31% • Solid growth in North America due to ® strong Life Scie
Slide 9: Stable dividend amid lower EPS pre
Stable dividend amid lower EPS pre Dividend1 development 2011-2018 2018 dividend • Dividend of €1.25 per share proposed2 for 2018 1.25 1.25 • Increase in payout ratio to 24.5% of 1.20 3 EPS pre in 2018 vs. 20.3% in 2017 1.05 4 1.00 • Dividend yield of 1.4% 0.95 0.85 0.75 1 1 1 2 2011 2012 2013 2014
Slide 10: Strategic Review
STRATEGIC REVIEW
Slide 11: Healthcare – Solid organic growth of 5.2% with contribution from Mavenclad and Bavencio
Healthcare – Solid organic growth of 5.2% with contribution of €160 m ® ® from Mavenclad and Bavencio Business performance Pipeline Sales and EBITDA pre margin Mavenclad: Solid organic net sales growth with an 0.9% average growth rate of 5.2% − Mavenclad U.S. submission accepted +5.2% organic (F
Slide 12: Life Science: Above-market performance during final year of incremental synergy realization
Life Science: Above-market performance during final year of incremental synergy realization Business performance Innovations Sales and EBITDA pre margin 5.2% +8.8% organic Above-market growth in Life Science ® 1 New Lab water Milli-Q IQ water purification €6.2 bn driven by strong organic develop
Slide 13: Performance Materials: New strategy defined and business successfully repositioned
Performance Materials: New strategy defined and business successfully repositioned Business performance Structure Sales and EBITDA pre margin -1.7% +1.7% organic Strategic recalibration in 2018 including a five-year transformation program – Semiconductor with strong “Bright Future” – to drive lo
Slide 14: Financial Overview
FINANCIAL OVERVIEW
Slide 15: FY 2018 Financials: Overview
FY 2018 Financials: Overview Key figures Comments [€m] FY 2017 FY 2018 Δ • EBITDA pre and margin reduction driven Net sales 14,517 14,836 2.2% by FX effects, PM decline, investments in 1 HC and LS, LTIP costs and last year non- EBITDA pre 4,246 3,800 -10.5% recurring income in HC Margin (in % of net
Slide 16: All business segments drive organic growth overcompensating FX headwinds
All business segments drive organic growth overcompensating FX headwinds FY 2018 YoY net sales • Solid organic growth in Healthcare reflects Organic Currency Portfolio Total ® increasing contribution of Mavenclad and ® Healthcare 5.2% -4.3% 0.0% 0.9% Bavencio and solidly growing core business • Life
Slide 17: Reported figures
Reported figures Reported results Comments [€m] FY 2017 FY 2018 Δ • Lower EBIT reflects FX headwinds, EBIT 2,423 1,727 -28.7% negative business mix in PM; LY EBIT driven by non-recurring income in HC, Financial result -294 -266 -9.6% Biosimilars disposal gain (~ €319 m) and write-up of Vevey site (~
Slide 18: Healthcare: Profitability driven by active portfolio development and strong topline
Healthcare: Profitability driven by active portfolio development and strong topline Healthcare P&L Comments ® • Solid organic top-line due to double-digit growth of Fertility, Glucophage [€m] Q4 2017 Q4 2018 ® ® and Concor ; Mavenclad and Bavencio strong ® Net sales 1,573 1,630 ® • Increasing contri
Slide 19: Life Science: Strong organic growth while strategic initiatives weigh on profitability
Life Science: Strong organic growth while strategic initiatives weigh on profitability Life Science P&L Comments • Double-digit growth in Process Solutions due to ongoing strong demand [€m] Q4 2017 Q4 2018 across all businesses, especially for filtration and single-use Net sales 1,496 1,628 • Applie
Slide 20: Performance Materials: Organic growth driven by LCD capacity ramp-up projects in China
Performance Materials: Organic growth driven by LCD capacity ramp-up projects in China while profitability trends towards 30% Performance Materials P&L Comments • Strong organic growth of PM due to continuing strong demand for [€m] Q4 2017 Q4 2018 Semiconductor Solutions & OLED; Ongoing but temporar
Slide 21: Balance sheet – strong progress in deleveraging
Balance sheet – strong progress in deleveraging Assets [€ bn] Liabilities [€ bn] 35.6 36.9 36.9 35.6 Cash & marketable securities 0,7 2,2 2,9 2,9 Receivables 2,6 2,8 Net equity 17,2 14,1 Inventories Intangible assets 21,9 21,0 10,8 Financial debt 8,9 1 2,2 2,2 Payables 2,3 2,3 Property, plant & equi
Slide 22: Cash flow statement
Cash flow statement Q4 2018 – cash flow statement Cash flow drivers [€m] Q4 2017 Q4 2018 Δ • Profit after tax driven by disposal gain Profit after tax 1,015 2,458 1,443 (+ €2.2 bn) from Consumer Health, which is neutralized in other operating activities D&A 511 508 -3 • Changes in other assets/liabi
Slide 23: Outlook and Guidance
Od ourrook AND GUIDANTE RPAQGRTK
Slide 24: Qualitative full-year 2019 guidance
Merck Group Qualitative full-year 2019 guidance Net sales: Moderate organic growth Slight FX headwinds of -1% to -2% YoY EBITDA pre: Strong organic % YoY increase in the low teens* Moderate FX headwinds of -3% to -4% YoY 24 *Incl. ~€130m YoY contribution from adoption of IFRS 16 (Healthcare ~30%, Li
Slide 25: Key earnings drivers to remember for 2019
Merck Group Key earnings drivers to remember for 2019 1 1 EBITDA -supporting factors EBITDA -reducing factors • Strong sales contribution from Mavenclad® ramp-up and Bavencio®; • Slight absolute increase in R&D costs budgeted for Healthcare but first sales contribution from Mavenclad® U.S. with pote
Slide 26: 2019 business sector guidance
Merck Group 2019 business sector guidance Healthcare Performance Life Science Materials Net sales Net sales Net sales ▪ Moderate organic growth ▪ Organic growth slightly above ~4% ▪ Moderate organic decline ▪ Base business at least stable organically p.a. medium-term market growth ▪ Liquid Crystals
Slide 27: Slide 27
Slide 28: Appendix
APPENDIX
Slide 29: Additional financial guidance 2019
Additional financial guidance 2019 Further financial details Corporate & Other EBITDA pre ~ -€360 – -400 m Interest result ~ -€220 – -240 m Effective tax rate ~ 24% to 26% Capex on PPE ~ €1.1 bn – 1.2 bn FY 2019 hedge ratio ~60% Hedging/USD assumption at EUR/USD ~1.20 2019 Ø EUR/USD assumption ~ 1.1
Slide 30: 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 in 2018 [Net financial debt/ EBITDA pre] • Commitment to swift deleveraging to ensure a strong investment grade credit rating and financial flexibility 4x • Consumer Healt
Slide 31: Well-balanced maturity profile reflects Sigma-Aldrich financing transactions
Well-balanced maturity profile reflects Sigma-Aldrich financing transactions Maturity profile as of Dec. 31, 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 32: Organic growth driven by Life Science and Healthcare
Organic growth driven by Life Science and Healthcare • Healthcare driven by strong demand for ® ® ® Q4 2018 YoY net sales Glucophage , Concor and Fertility; Bavencio ® ® offset Erbitux decline; Rebif decline partially Organic Currency Portfolio Total mitigated by Mavenclad ® Healthcare 5.5% -1.9% 0.
Slide 33: Q4 2018: Overview
Q4 2018: Overview Key figures Comments [€m] Q4 2017 Q4 2018 Δ • EBITDA pre margin reduction reflects FX Net sales 3,648 3,888 6.6% headwinds, negative business mix in PM, 1 higher LTIP and hedging costs EBITDA pre 962 950 -1.3% • Lower EPS pre in line with EBITDA pre Margin (in % of net sales) 26.4%
Slide 34: Reported figures
Reported figures Reported results Comments [€m] Q4 2017 Q4 2018 Δ • Higher EBIT due to increased gross EBIT 240 341 42.0% profit of LS and HC and non-recurring income in HC Financial result -94 -84 -10.5% • Profit before tax in line driven by EBIT Profit before tax 146 257 76.0% increase and improve
Slide 35: Healthcare: Solid organic sales growth while profitability declines amid FX headwinds
Healthcare: Solid organic sales growth while profitability declines amid FX headwinds and last year non-recurring income Healthcare P&L Comments • Organic growth supported by strong General Medicine and Fertility; ® ® Launches of Mavenclad and Bavencio on track [€m] FY 2017 FY 2018 ® • Ongoing decli
Slide 36: Healthcare organic growth by franchise/product
Healthcare organic growth by franchise/product Q4 2018 organic sales growth [%] FY 2018 organic sales growth [%] by key product [€ m] by key product [€ m] 344 1 438 -10% -7% 381 1 611 202 816 -2% 0% 215 853 175 708 +4% +5% 171 704 216 733 +25% +15% 177 662 140 475 +32% +11% 109 444 98 363 +7% +2% 95
Slide 37: Rebif: Ongoing decline in line with interferon market
® Rebif : Ongoing decline in line with interferon market ® ® Rebif sales evolution Q4 2018 Rebif performance ® North America Q4 drivers • Rebif sales of €344 m in Q4 2018 [€ m] reflect organic decline of -10.3% amid -11.3% org. stable FX effect of 0.6% 300 Price • U.S. and European volume declines
Slide 38: Erbitux: A challenging market environment
® Erbitux : A challenging market environment ® ® Erbitux sales by region Q4 2018 Erbitux performance -2.5% Q4 YoY • Absolute sales decrease to €202 m, due [€ m] organic growth to organic low single-digit decline and FX 250 headwinds • Organic decline in Europe driven by +9.9% 200 ongoing competition
Slide 39: Double-digit organic growth of Fertility and General Medicine
Double-digit organic growth of Fertility and General Medicine Sales evolution Q4 2018 organic drivers Fertility [€ m] • Fertility posts double-digit growth driven 301 298 by growth across all regions, mainly APAC 274 265 298 300 Organic and North America 200 100 +10.7% org. ® 0 • Gonal-f solid organ
Slide 40: The Healthcare Pipeline continues to deliver
Healthcare Strategy The Healthcare Pipeline continues to deliver February 12, 2019 Phase I Phase II Phase III M2698 avelumab tepotinib sprifermin avelumab - anti-PD-L1 mAb p70S6K & Akt inhibitor anti-PD-L1 mAb MET kinase inhibitor fibroblast growth factor 18 Non-small cell lung cancer 1L1 Solid tumo
Slide 41: Recent & upcoming catalysts
Recent & upcoming catalysts 2019 - A year of continued pipeline development1 Oncology Q1 Q2 Q3 Q4 Immuno-Oncology Bavencio® Bavencio® Tepotinib (Avelumab/Anti-PD-L1) (Avelumab/Anti-PD-L1) (c-Met–inhibitor) Neurology Expected FDA decision Expected presentation of Filing accepted by FDA for Priority f
Slide 42: Life Science: Strong organic sales growth across all businesses
Life Science: Strong organic sales growth across all businesses Life Science P&L Comments [€m] FY 2017 FY 2018 • Double-digit growth in Process Solutions fueled by continuing high demand across all businesses, especially single use and filtration Net sales 5,882 6,185 -1,734 -1,775 • Applied Solutio
Slide 43: Performance Materials: Positive organic growth due to strong demand for Semiconductor Solutions and OLED
Performance Materials: Positive organic growth due to strong demand for Semiconductor Solutions and OLED offsetting LC decline Performance Materials P&L Comments • Organic growth driven by growth of Semiconductor and OLED [€m] FY 2017 FY 2018 overcompensating Liquid Crystals decline; Liquid Crystals
Slide 44: Cash flow statement
Cash flow statement FY 2018 – cash flow statement Cash flow drivers [€m] FY 2017 FY 2018 Δ • Profit after tax driven by disposal gain Profit after tax 2,615 3,396 781 (+ €2.2 bn) from Consumer Health, which is neutralized in other operating activities D&A 1,758 1,812 54 • Last year profit after tax
Slide 45: Adjustments in Q4 2018
Adjustments in Q4 2018 Adjustments in EBIT [€m] Q4 2017 Q4 2018 Adjustments thereof D&A Adjustments thereof D&A Healthcare 73 33 23 11 Life Science 123 0 54 2 Performance Materials 34 19 28 20 Corporate & Other 43 4 34 0 Total 272 56 138 33 Totals may not add up due to rounding 45
Slide 46: Adjustments in FY 2018
Adjustments in FY 2018 Adjustments in EBIT [€m] FY 2017 FY 2018 Adjustments thereof D&A Adjustments thereof D&A Healthcare -307 -51 75 11 Life Science 209 3 108 23 Performance Materials 59 26 37 21 Corporate & Other 103 4 107 0 Total 64 -19 327 55 Totals may not add up due to rounding 46
Slide 47: Financial calendar
Financial calendar Date Event April 26, 2019 Annual General Meeting May 14, 2019 Q1 2019 Earnings release August 8, 2019 Q2 2019 Earnings release November 14, 2019 Q3 2019 Earnings release 47
Slide 48: 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 AMELIE