Merck Kgaa · XETR:MRK
Merck Kgaa — Q2 2017 Earnings Presentation
101 slides from Merck Kgaa's earnings presentation, August 2017
Slide 1: Merck – Q2 2017 Roadshow
MERCK – Q2 2017 ROADSHOW Investor Relations August 2017
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: Agenda
Agenda Business overview Transforming the company Healthcare – Funding for success Life Science – Focusing on profitable growth Performance Materials – Expanding leadership and innovation Executive summary and guidance 3
Slide 4: Business Overview
oO} BUSINESS OVERVIEW Sa aan BARREK
Slide 5: Merck Group: Portfolio of three high-tech businesses
Merck Group Portfolio of three high-tech businesses Healthcare Performance Life Science Materials Leading in specialty Leading life science Market leader in pharma markets company specialty materials • Biologics and small-molecules • Tools and services for biotech • Innovative display materials rese
Slide 6: Strong businesses with attractive margins
Merck Group Strong businesses with attractive margins % of sales Margin1 % of EBITDA pre 46% 31.0% 43% FY 2016 FY 2016 Sales: EBITDA pre2: €15,024 m €4,490 m 29.2% 34% 38% 23% 16% 44.1% Healthcare Life Science Performance Materials 1EBITDA pre margin in % of net sales; 2Including Corporate/Others (-
Slide 7: Transforming the Company
TRANSFORMING THE 02 TOMPANY BARREK
Slide 8: Strategic roadmap 2016-2022
Merck Group Strategic roadmap 2016-2022 2012-2015 2016-2018 2019-2022 Turnaround Fully leverage Efficiency First pipeline in Healthcare pipeline potential program launches Portfolio Above- 3 strong market growth optimization in LS and PM pillars Portfolio in Life Science Sigma management integration
Slide 9: Merck has added scale and strengthened its portfolio
Merck Group Merck has added scale and strengthened the attractiveness of its portfolio 2007: ~€7 bn sales Transformation volume 2016: ~€15 bn sales Consumer Health merged + Healthcare 1 Ethicals Serono Generics - ~€5 bn ~€30 bn + Life Science Millipore & 2 Life Science Solutions Sigma-Aldrich merged
Slide 10: Profitability improved fundamentally
Merck Group Profitability improved fundamentally Acquisition of Acquisition of AZ Sigma-Aldrich 1 Electronic Materials €m Margins Acquisition of Millipore 15,024 14 000 35% Acquisition of Serono 12,845 12 000 Divestment of Generics 11,363 10,756 10,735 9,922 30% 10 000 8,951 30% 30% 7,202 29% 8 000
Slide 11: We have created three leading businesses
Merck Group We have created three leading businesses Healthcare Life Science Performance Materials Serono Millipore AZ Sigma • Leading biotech company • No. 3 in the world market • World market leader • Global footprint • Broad and global product portfolio • Technology and innovation leader • Strong
Slide 12: Clear set of priority goals to be realized by 2018
Merck Group Clear set of priority goals to be realized by 2018 Performance Healthcare Life Science Materials ~43% ~34% ~23% EBITDA EBITDA EBITDA pre* pre* pre* Maximize growth of existing Focus on seamless integration Drive innovation and franchises and deliver cost synergies technology leader
Slide 13: Our successful regular portfolio optimization will continue
Merck Group Our successful regular portfolio optimization will continue DNA Prerequisites Experience Clear criteria Acquisitions and Merck is highly cash- 28 transactions since Supporting mid-term 2 divestments are part of generative with free cash 2002 for ~€38 bn strategy and strengthening
Slide 14: Healthcare – Funding for Success
HEALTHCARE – FUNDING FOR SUCCESS
Slide 15: Healthcare is set to deliver on promising pipeline candidates
Healthcare Healthcare is set to deliver on promising pipeline candidates At least stable existing business Deliver Solid pipeline of oncology, immuno-oncology and on organic growth immunology molecules Transformation of R&D operating model ongoing Focus on pipeline Competitive R&D funding in our foc
Slide 16: Operational excellence drives healthy growth of existing businesses
Healthcare Operational excellence drives healthy growth of existing businesses Historic organic sales growth development Organic growth Organic 24 quarter Ø ~4% org. for 24 growth, % 7% consecutive 4% 5% 4% 5% 5% 4% 5% 4% 4% 3% quarters 2% 2% 2% 3% 1% 3% 0.3% …2012 2013 2014 2015 2016 2017… Qualitat
Slide 17: Well on track to deliver the pipeline
Healthcare Well on track to deliver the pipeline Growth initiatives Potential pipeline sales > €2 bn* and pipeline Deliver the pipeline Existing business < €50 m* 2014 2018E 2017 2018… …2022 Key investments Increase ~€150 – 200 m higher R&D costs in 2017 vs. 2016 R&D spending Avelumab Main moving pa
Slide 18: Increasing R&D productivity with focus on transformative assets
Healthcare Increasing R&D productivity with focus on potentially transformative assets Phase I Phase II Phase III Registration BTK-i Avelumab atacicept tepotinib Avelumab Avelumab (hematological tumors) (mono/combinations) (SLE) (HCC/NSCLC) (mono/combinations) (MCC) DNA-Pki / ATRi M7824/TGF-b trap B
Slide 19: Potential launches, pivotal catalysts and value inflection points
Outlook 2 potential launches, 4 pivotal catalysts and major value inflection points Avelumab Avelumab EMA decision Ph III data readout (MCC) (Gastric 3L)1 Cladribine tablets Avelumab EC decision Ph III data readout (RMS) (NSCLC 2L)1 Q3 Q4 Q1 2018 Sprifermin M7824 Atacicept Final phase II Preliminary
Slide 20: Life Science – Focusing on Profitable Growth
LIFE SCIENCE – FOCUSING ON PROFITABLE GROWTH
Slide 21: Serving customers across the life science industry
Life Science Serving customers across the life science industry RESEARCH PROCESS APPLIED Academic and Pharmaceutical companies Diagnostic manufacturers government institutions Small biotech Clinical testing labs Biopharma R&D Contract manufacturing Food & Beverage Industry R&D orga
Slide 22: Sustainable value based on strong strategic levers
Life Science We create sustainable value that is based on strong strategic levers Wide, innovative Balanced geographic Industry-leading portfolio footprint capabilities A combined portfolio of +300,000 Increased presence in North America Outstanding supply chain products management (ability to
Slide 23: Above-market growth enhanced by top-line synergies
Life Science Above-market growth to be enhanced by top-line synergies Merck and Sigma-Aldrich organic growth rates versus market growth Organic Above-market growth, % 6.5% 6.3% growth 5.5% 4.5% 7.3%1 3.8% Long-term average market growth2 ~4% 3.5% 2.6% 3.8% … 2012 2013 2014 2015 2016 2017+ Merck Sigm
Slide 24: Synergy upgrade driven by fast 2016 execution
Life Science Synergy upgrade driven by fast 2016 execution and top-line synergies EBITDA pre impact of synergy ramp-up [€ m] Sources ~5 ~105 ~185 ~280 Cost synergy status (for 2016) +20 • Faster implementation of synergy measures in all areas • 2016 total cost synergies of ~€105 m +15 • Integration
Slide 25: We aim to be the profitability champion of the sector
Life Science We aim to be the profitability champion of the sector Sales breakdown as of FY 2016 Above industry margin levels Profitability champion including synergies* Applied Solutions Research Solutions Mid single digit growth Low single digit growth Company A 27% 36% Millipore Sigma SIAL MM Com
Slide 26: Performance Materials – Expanding Leadership and Innovation
PERFORMANCE MATERIALS – EXPANDING LEADERSHIP AND INNOVATION
Slide 27: Four-pillar strategy drives higher diversification
Four-pillar-strategy drives Performance Materials to a higher level of diversification Sales share of Liquid Crystals for displays versus all other businesses Liquid Crystals for Diversification of All other businesses display applications Performance Materials increased due to 100% • AZ acquisition
Slide 28: Four-pillar strategy and innovation power strengthen earnings profile
Performance Materials Four-pillar strategy and innovation power strengthen our earnings profile Ongoing innovation Launch of innovative products and new business models continues 1 Superior profitability Four strong pillars Strength Strong earnings Combination of four 2 resilience highly profitable
Slide 29: Market shares are returning to normal levels
Market shares are returning to normal levels Merck global liquid crystal market share development Market Reasons for elevated levels Market share normalization share • Established manufacturing processes in China • Expanding market opportunity due to China emerging to an important display market • I
Slide 30: Market share normalization will have financial implications
Market share normalization will have financial implications Sales: Liquid Crystals: Organic EBITDA pre and market share illustration • ~ €200 – 300 m Liquid Crystals sales decline, depending on market share assumptions • Started end of 2016; expected to last up to end of 2018 Profitability : • Volum
Slide 31: Leveraging capabilities to address shift to Chinese market
Merck will leverage its capabilities to address shift towards more dynamic Chinese market Share of global display production capacities by region [km²]* Panel market dynamics in China • Strong capacity build-up since 2012 [km²] CAGR: ~4% • Historically main focus on local market supply with low to m
Slide 32: Performance Materials on track to achieve solid growth path
Performance Materials on track to achieve solid growth path Performance Materials mid-term sales development and drivers Low single Mid-term digit (CAGR) growth trend from 2016 Advanced Technologies Enhance and exploit leading position in OLED Integrated Circuit Materials Outpace market growth with
Slide 33: Executive Summary and Guidance
EXECUTIVE SUMMARY AND GUIDANCE
Slide 34: We are well on track to deliver on our promises
Merck Group We are well on track to deliver on our promises 1 Net debt reduced by ~€1.4 bn Group Strict financial discipline supports rating Important Base business growing milestones Healthcare 2 avelumab indications launched reached to deliver on our Sigma-Aldrich synergies raised and well on trac
Slide 35: Clear financial priorities for the next two years
Merck Group Merck has clear financial priorities for the next two years Strong cash flow will be used to drive down gearing to <2x net debt / EBITDA pre in 2018 Focus on cash flow and deleveraging Larger acquisitions (>€500 m) ruled out for the next two years (or financed by divestments) Divid
Slide 36: Full-year 2017 guidance broadly confirmed
Full-year 2017 guidance broadly confirmed Net sales: ~ €15.3 – 15.7 bn EBITDA pre: ~ €4,400 – 4,600 m EPS pre: ~ €6.15 – 6.50 36
Slide 37: Slide 37
Slide 38: Appendix
Appendix Guidance details Healthcare Life Science Performance Materials Financial details 38
Slide 39: Guidance Details
oO} GUIDANTE DETAILS Sa aan BARREK
Slide 40: 2017 business sector guidance
2017 business sector guidance Healthcare Performance Life Science Materials Net sales Net sales Net sales • Slight organic growth • Organic growth slightly above • Slight to moderate organic decline • Ongoing organic Rebif decline market, driven by Process Solutions • Volume increases in all busines
Slide 41: Additional financial guidance 2017
Additional financial guidance 2017 Further financial details Corporate & Other EBITDA pre ~ -€350 – -400 m Interest result ~ -€250 – -260 m Effective tax rate ~ 23% to 25% Capex on PPE ~ €850 – 900 m 2017 hedge ratio ~60% Hedging/USD assumption at EUR/USD ~ 1.11 to 1.13 2017 Ø EUR/USD assumption ~ 1
Slide 42: 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 43: Currency exposure by business sector
Life Science and Healthcare with natural hedge, while Performance Materials affected by currency swings Healthcare Performance Life Science Materials Sales Sales Sales • Global presence • Balanced regional sales split • ~80% of sales in Asia-Pacific between EU, NA and RoW • ~40% of sales in Europe •
Slide 44: Sustainable dividend development
Sustainable dividend development Dividend1 development 2011-2016 2016 dividend • Dividend of €1.20 per share for 2016, reflecting 19.3% of EPS pre 1,20 • Dividend development in line with business performance and earnings 1.05 1.00 progression 0.95 0.85 • Dividend yield2 of 1.21% 0.75 2011 2012 2013
Slide 45: Strong innovation capabilities will drive growth
Our strong innovation capabilities will drive growth 3 New product launch cadence by business sector 1 New product sales potential 2022 2 ~ 20% BTKi > €2 bn 3 Avelumab Avelumab TGF-Beta gastric, DNA-PK MCC trap NSCLC Cladribine Next-gen. Avelumab atacicept Tablets filtration RCC, ova > €1 bn CellASI
Slide 46: Healthcare
fe) 2 HEALTHCARE BARREK
Slide 47: Portfolio management across diverse business models
Portfolio management: Differentiating across diverse business models Oncology & Immunology General Medicine portfolio Biologicals portfolio innovation portfolio • Limited risk with high cash • Moderate risk and reward profile • High reward at high risk generation • Economies of scale due to state- •
Slide 48: Road to maximizing Healthcare's existing franchises
The road to maximizing Healthcare’s existing franchises is clear Continue to drive mCRC* share by increasing patient testing and expanding head and neck coverage Ongoing 3x3 growth strategy implementation to strengthen Consumer sales and marketing activities delivering above-market Health organic sa
Slide 49: Merck pipeline
Merck pipeline Phase I Phase II Phase III Registration M2698 – p70S6K & Akt inhibitor Tepotinib Avelumab – Anti-PD-L1 mAb Cladribine4 Tablets – Solid tumors c-Met kinase inhibitor Non-small cell lung cancer 1L1 Lymphocyte targeting agent M3814 – DNA-PK inhibitor Non-small cell lung cancer Avelumab –
Slide 50: Oncology strategy anchored on four pillars
Oncology Strategy anchored on four foundational pillars 1. MCC, UC 2L, Gastric 3L, NSCLC 1L/2L, 1. Monotherapy as a basis for combinations 2. Maintenance in UC 1L, gastric 1L, ovarian 1L 1 2. Establish immunogenic priming in combination or sequence with CT/RT1 Avelumab 3. Proprietary novel combinati
Slide 51: External innovation: 2017 deal activity
External Innovation 2017 deal activity aligned with strategic pillars 1 2 3 Merck + Merck + Clinical collaborations for avelumab combinations Expand across the Leading bi-specific Strengthen immunity cycle platform DDR platform • EpiThany: EP-101 STEMVAC vaccine • Option deal • Acquisition (license)
Slide 52: Avelumab: nine ongoing pivotal studies
1 Avelumab Nine ongoing pivotal studies with differentiation potential 2017 2018 2019 2020 2021 Est. primary completion1 Gastric 3L Aug Monotherapy as basis for exploring combinations 1 NSCLC 2L Jan Establish potential of unique molecular characteristics Jul (ADCC) NSCLC 1L Ovarian Plat. Res./Ref. M
Slide 53: Avelumab in metastatic Merkel cell carcinoma
1 Avelumab Clinical results support avelumab as therapeutic option for metastatic Merkel cell carcinoma Encouraging response rates1 Potential for differentiation • ORR: 31.8% • Largest international multicenter, open-label study of anti-PD- L1/PD-1 reported in this patient population (88 patients) –
Slide 54: Key ASCO abstracts at a glance
Key ASCO abstracts at a glance (two oral presentations) • Initial results from a cohort of chemotherapy-naïve pts with mMCC (ongoing study) MCC (1L) • Manageable safety profile, consistent with findings for 2L+ cohort • Unconfirmed ORR: 64.0% (≥6 weeks follow-up) / Confirmed ORR: 56.3% (≥3 months fo
Slide 55: Avelumab NSCLC 1L: potential efficacy upside
1 Avelumab NSCLC 1L: Assessing potential efficacy upside in mono-therapy1 NSCLC 2L+: exposure response NSCLC 1L: testing hypothesis of higher efficacy/intensity correlation Hypothesis : higher drug intensity may result in greater efficacy (potentially driven by ADCC) • Potential association between
Slide 56: Avelumab plays in attractive, differentiated niches
1 Avelumab Avelumab plays predominantly in attractive and differentiated niches avelumab NSCLC Number of trials per indication Melanoma Gastric/Esophageal Head & Neck RCC CRC Pancreas Breast Bladder NHL Ovarian Glioblastoma HL Prostate SCLC Multiple Myeloma AML Liver / HCC Mesothelioma CLL MCC Marke
Slide 57: Differentiation strategy by indication and market
1 Avelumab Differentiation strategy varies according to chosen target indication and market • Ambition to lead in niche indications (e.g. Merkel 1 cell) or markets (e.g. Asia for gastric) • Quick to market strategy (e.g. BTD designation Unsaturated for MCC) and / or niche • Small, but less crowded m
Slide 58: Combinations will drive differentiation strategy
1 Avelumab Combinations will drive differentiation strategy 1 • Phase III: Ovarian 1L & Plat. Res. Ref. (Avelumab + Chemotherapy) Combinations • Phase III: Renal 1L (Avelumab + Inlyta) • Phase III: L/A Head and Neck (Avelumab + Chemoradiation) Monotherapy 2 • Phase I: DLBCL (Avelumab + various agent
Slide 59: Anti-PD-L1/TGF-ß trap: dose escalation completed
2 Anti-PD-L1/TGF-ß trap Dose escalation completed, showing first signs of clinical activity1 • Innovative first-in-class bifunctional fusion protein designed to simultaneously target two immune suppressive pathways (blocking PD-L1 and reducing TGF-β signaling) • Manageable safety profile (patients w
Slide 60: PD-L1–TGF-beta potential beyond checkpoint inhibitors
2 Anti-PD-L1/TGF-ß trap PD-L1–TGF-beta indicates potential to move beyond checkpoint inhibitors Four focus areas for exploration Status and next steps • Novel, first-in-class bifunctional immunotherapy Replace Identify • Bifunctional mode should result in broader application vs. current opportunitie
Slide 61: Cohort data will enable decision per indication
2 Anti-PD-L1/TGF-ß trap Cohort data will enable decision per indication/category Dose escalation completed1 14 cohorts in recruitment Defined criteria allow timely decision Expand cohort and/or explore single-arm path-to-registration Expand cohorts to confirm signal and/or • Ongoing confirmed CR fol
Slide 62: DNA damage response: complete portfolio
3 DNA damage response (DDR) Complete portfolio supporting leadership in a potentially disruptive class Genomic instability: a hallmark of late stage cancers1 • DNA damage response (DDR) keeps genetic information intact • In many cancers DDR pathways are defected, leading to greater dependency on rem
Slide 63: Clinical program targets all three DDR pathways
3 DNA damage response (DDR) Clinical program targets all three DDR pathways, in mono- and combination Lead Optimization Pre-clinical Phase I Phase II Phase III VX-970 Phase IB expansion cohorts ongoing in combination with CT (TNBC, NSCLC, SCLC) ATR-i VX-803 Phase I dose escalation ongoing for mono-
Slide 64: Broad combination potential across mechanisms
34 DNA damage response (DDR) Broad combination potential across multiple mechanisms At least 50% of all cancer patients Combination receive some type of RADIATION with CT therapy (NCI 2016) Combination Combination with RT with ADC At least 70% of all cancer patients receive some type of CHEMOTHERAPY
Slide 65: Update on selected assets
Update on selected assets • Binds to receptors of two cytokines regulating maturation, function, and survival of B cells (B-lymphocyte stimulator (BLyS) & a proliferation-inducing ligand (APRIL)) • ADDRESS II (Phase IIb) in SLE patients (n=306): Phase III decision • Primary endpoint not met, but ana
Slide 66: Immunology strategy anchored on leadership
Immunology Strategy anchored on leadership in selected disease areas Sustain Build additional New leadership AI pillars frontiers • OA DISEASE Indications MS LUPUS AI MODIFICATION LEADERSHIP CORE FOCUS INDICATIONS • SSC-ILD FIBROSIS Rebif: a pioneer Marketed/ Filed assets Cladribine tablets: in regi
Slide 67: Cladribine tablets – EC decision expected Q3 2017
Cladribine tablets – Decision by EC expected in Q3 2017 Background Potential for differentiation • Targets lymphocytes (both B and T cells), integral to MS pathogenesis • Two Phase III and one Phase IIIb extension studies conducted in RRMS and early MS1,2,3; Phase II study in patients failing IFN be
Slide 68: Cladribine tablets supported by 10,000 patient years
Cladribine tablets supported by 10,000 patient years of experience collected over 13 years including an 8 year safety registry 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 CLARITY Phase III, RRMS CLARITY EXT Phase IIIb, RRMS (N=1326) (N=806) 2 years 2 years Over 2,000 patien
Slide 69: Evobrutinib: highly selective BTK-i
Evobrutinib Highly selective BTK-i to be explored as chronic therapy Safety: promising kinase selectivity minimizing off-target effects1 • Greater selectivity vs. in-class competitors in kinase screen (>270 kinases) • Besides BTK, two more kinases inhibited (vs. 25 off-target kinases by others) • Ki
Slide 70: Evobrutinib development plan
Evobrutinib Comprehensive development plan across immune-mediated diseases Comprehensive phase I/IIa Robust phase II program to enable Read-outs safety data-set differentiated phase III • Randomized, double-blind, placebo- controlled study in patients with RMS Safety RMS • 250 patients Q1 2019 SLE •
Slide 71: Healthcare is well set for future growth
Outlook Healthcare is well set for future growth Stable existing Base business delivering solidly with stable outlook business R&D pipeline High quality assets across all three areas continuously optionality complemented with short- and longer term optionalities Innovative Joint investments and inno
Slide 72: Life Science
fe) az LIFE SCIENCE BARREK
Slide 73: Balanced portfolio and geographic presence
A balanced portfolio and geographic presence Sales by business unit Sales by region Applied Solutions Research Solutions North America Europe 36% 36% 27% FY 2016 sales: 35% FY 2016 FY 2016 €5.7 bn 37% 23% 4% Asia-Pacific 2% Process Solutions Middle East Africa Latin America 73
Slide 74: Life Science is an attractive market
Life Science is an attractive market RESEARCH PROCESS APPLIED ~€42 bn ~€38 bn ~€45 bn Low single digit High single digit Mid single digit Growth in volume of experiments Drug volume growth Volume growth from Mild growth in academic funding from biologics Population growth Investment in
Slide 75: Success driven by portfolio breadth and capabilities
Success driven by portfolio breadth and differentiation, a customer-centric approach and world-class capabilities RESEARCH PROCESS APPLIED Broad, relevant and Developed market: Customized workflows innovative portfolio Deep expertise in each for specific applications unit operation Simple customer A
Slide 76: End-to-end portfolio for manufacturing mAbs
Process Solutions Our end-to-end portfolio for manufacturing mAbs MAKE Produce antibodies PURIFY Remove cell debris, virus, etc. FORMULATE Final drug product EX-CELL® Advanced™ Viresolve® Pro Pellicon® Clarisolve ® FlexReady ® CHO Fed-batch solution cassette filters clarification chromatography Medi
Slide 77: #1 website in research life science industry
#1 website in research life science industry Industry leading e-commerce platform and supply chain capability SEARCH CONTENT ORDER Hundreds of Online leader in thousands of scientific content: products at your articles, protocols Real-time pricing Convenient and simple fingertips and peer reviewed a
Slide 78: Life Science delivers synergies and integrates as planned
Life Science delivers synergies and integrates as planned synergies + Integration Delivery of 2016 synergy target of Smooth integration ongoing with early €105 m: achievements: • HQ measures complete • Organization structure implemented • >50% of headcount targets met • High engagement from organiza
Slide 79: Performance Materials
PERFORMANCE (OU materiacs BARREK
Slide 80: The four pillars are set for profitable growth
Performance Materials The four pillars are set for future profitable growth Mid-term Business unit % sales Products growth trend Liquid crystals (LC) and photoresists for TVs, ~50-55% smartphones and tablet computers Display Materials Other display and non-display applications (e.g. LC Windows)
Slide 81: Liquid crystals dominant display technology
Liquid crystals are clearly the dominant display technology Market share by display technology Rationale for LCD leadership Relative display For consumers: surface area 1% • Price 100% 6% • Thinner frames 21% • Higher resolution in all sizes 80% • Proven track record of extreme reliability 6% For ma
Slide 82: Leading OLED business well set for display opportunities
Our leading OLED business is well set to exploit display market opportunities Market position Solution provider Among top 3 OLED material provider Merck Ambition Supplier of all OLED stack layers Unrivaled experience and expertise in displays Excellence in vapor & printable materials Long
Slide 83: Liquid crystals offer a variety of opportunities
Liquid crystals OFFER a variety of opportunities 2 4 6 1. Adaptive lighting for 3 5 automotive 2. Adaptive lighting for architecture 3. Smart antenna 4. Liquid crystal windows for 1 architecture 5. Holography 6. Free form LCD 83
Slide 84: Strong position benefits from technological advances
Merck has a strong position and will benefit further from complex technological advances and underlying market trends Market drivers and technological trends Feature sizes develop as predicted by Moore‘s law Miniaturization: Devices are becoming smaller with better performance Need for enabling ma
Slide 85: Financial Overview
FINANCIAL OVERVIEW (oS BARREK
Slide 86: Organic growth driven by APAC, LATAM and MEA
Organic growth driven by APAC, LATAM and MEA Regional breakdown of net sales [€ m] Regional organic development Europe -1.0% • Slight decline in Europe reflects competition org. for Rebif, Erbitux and Gonal-f, mitigated by solid demand in Life Science 30% • Slight growth in North America from Life S
Slide 87: Healthcare investments and Liquid Crystals softness burden EBITDA pre
Investments in Healthcare and softness in Liquid Crystals burden EBITDA pre Q2 2017 YoY net sales • Healthcare reflects strong growth in General Medicine, especially Glucophage in China Organic Currency Portfolio Total and resilience of portfolio Healthcare 2.6% 0.1% -1.0% 1.7% • Solid growth in Lif
Slide 88: Q2 2017: Overview
Q2 2017: Overview Key figures Comments [€m] Q2 2016 Q2 2017 Δ • EBITDA pre & margin reduction reflect Net sales 3,805 3,891 2.3% investments in Healthcare and ongoing LC market share normalization EBITDA pre 1,158 1,093 -5.6% • EPS pre stable despite EBITDA pre Margin (in % of net sales) 30.4% 28.1%
Slide 89: Healthcare: Investments weigh on profitability
Healthcare: Investments in future growth weigh on profitability Healthcare P&L Comments [€m] Q2 2016 Q2 2017 • Rebif organically lower as competition in U.S. & E.U. as well as tender phasing in Russia outweigh pricing and positive inventory effect in the U.S. Net sales 1,754 1,783 • Organic decline
Slide 90: Healthcare organic growth by franchise/product
Healthcare organic growth by franchise/product Q2 2017 organic sales growth [%] H1 2017 organic sales growth [%] by key product [€ m] by key product [€ m] 425 -4% 841 -4% 441 863 213 -8% 431 -2% 232 438 Consumer 221 +4% Consumer 450 +5% 212 427 Health Health 193 -7% 365 -8% 209 396 164 +60% 330 +67%
Slide 91: Rebif: Relief in the U.S., competition in Europe
Rebif: Relief in the U.S. – competitive ramp-up in Europe ongoing Rebif sales evolution Q2 2017 Rebif performance North America Q2 drivers • Rebif sales of €425 m in Q2 2017 reflect [€ m] organic decline, while FX is almost neutral Price 4.4% org. increase Price • U.S. price increases and wholesaler
Slide 92: Erbitux: A challenging market environment
Erbitux: A challenging market environment Erbitux sales by region Q2 2017 Erbitux performance -7.9% Q2 YoY • Sales decline organically to €213 m [€ m] organic growth comparing to strong base LY 250 • Europe impacted by competition, price reductions and shrinking market size due 16.0% 200 to increasi
Slide 93: Strong organic growth of General Medicine
Strong organic growth of General Medicine driven by all major products Sales evolution Q2 2017 organic drivers Fertility [€ m] • Fertility slightly lower, mainly due to 300 Gonal-f facing high base LY and ongoing 260 Organic competition from biosimilars in Europe 220 -1.5% org. 180 • LY Gonal-f bene
Slide 94: Life Science: Solid organic growth and synergy realization
Life Science: Solid organic growth and synergy realization drive EBITDA pre Life Science P&L Comments [€m] Q2 2016 Q2 2017 • Growth of Process Solutions picks up due to ongoing strength in single-use, service activities and improved small molecule business Net sales 1,430 1,495 -413 -443 • Applied S
Slide 95: Performance Materials: LC market share normalization
Performance Materials: Ongoing LC market share normalization burdens profitability Performance Materials P&L Comments [€m] Q2 2016 Q2 2017 • Organic growth of Integrated Circuit Materials, Pigments and OLED not fully offsetting Liquid Crystal market share normalization Net sales 621 612 -59 -64 • LC
Slide 96: Reported figures reflect business performance and impairments
Reported figures reflect business performance and impairments Reported results Comments [€m] Q2 2016 Q2 2017 Δ • EBIT higher despite lower EBITDA pre EBIT 550 628 14.0% due to write-up of Vevey site (~ -€70 m) and Xalkori impairment (~ €70 m) LY Financial result -121 -71 -41.5% • Financial result LY
Slide 97: Balance sheet – deleveraging in progress
Balance sheet – deleveraging in progress after Sigma acquisition Assets [€ bn] Liabilities [€ bn] 38.3 38.3 Cash & marketable securities 1,1 36.8 36.8 2,9 1,1 3.0 Receivables 2,6 2,7 14,1 Net equity Inventories 13,8 Intangible assets 25.0 23,1 12,6 Financial debt 12,4 2.0 2.0 Payables 2,3 Property,
Slide 98: Healthy operating cash flow
Healthy operating cash flow supported by lower tax payments Q2 2017 – cash flow statement Cash flow drivers [€m] Q2 2016 Q2 2017 Δ • D&A reduction reflects write up of Profit after tax 314 423 109 Vevey site (~ -€70 m) and Xalkori impairment (~ €70 m) LY D&A 519 380 -139 • Changes in other assets/li
Slide 99: Exceptionals in Q2 2017
Exceptionals in Q2 2017 Exceptionals in EBIT [€m] Q2 2016 Q2 2017 Exceptionals thereof D&A Exceptionals thereof D&A Healthcare 70 71 -53 -68 Life Science 74 0 46 3 Performance Materials 7 0 16 7 Corporate & Other 10 0 16 -3 Total 160 71 25 -61 99 Totals may not add up due to rounding
Slide 100: Financial calendar
Financial calendar Date Event November 9, 2017 Q3 2017 Earnings release March 8, 2018 Q4 2017 Earnings release April 27, 2018 Annual General Meeting May 15, 2018 Q1 2018 Earnings release 100
Slide 101: 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