Merck KGaA · XETR:MRK
Merck KGaA — Berenberg European Conference 2013
59 slides from Merck KGaA's conference presentation, Dec 4, 2013
Slide 1: Merck – Berenberg European Conference 2013
Merck – Berenberg European Conference 2013 Dr. Stefan Oschmann Member of the Executive Board, Merck Serono & Consumer Health London, 4 December 2013
Slide 2: Disclaimer
Disclaimer Remarks All comparative figures relate to the corresponding last year’s period. Important information This presentation does not constitute an offer of securities for sale or a solicitation of an offer to purchase securities in the United States. The shares referred to herein have not bee
Slide 3: Agenda
Agenda The Merck Group Transforming the company Business overview on Merck Serono Financials and guidance
Slide 4: Merck - A balanced portfolio of four divisions
Merck - A balanced portfolio of four divisions The Merck Group Merck Serono Consumer Health Performance Materials Merck Millipore Leading in certain Present in OTC niche No. 1 in display materials Top 3 in life science tools specialty pharma markets markets Life cycle management Vitamins Custo
Slide 5: Strong businesses with attractive margins
Strong businesses with attractive margins Operating profitability % of sales Margin* % of EBITDA pre 56% 33.8% 57% Q3 2013 Q3 2013 Sales: 5% 18.4% 3% EBITDA pre**: €2,659 m €831 m 15% 48.4% 22% 24% 24.6% 18% Merck Serono Consumer Health Performance Materials Merck Millipore *EBITDA pre margin in % o
Slide 6: Emerging Markets and Japan drive organic growth, reported sales burdened by strong FX headwinds
Emerging Markets and Japan drive organic growth, reported sales burdened by strong FX headwinds Merck Group Q3 2013 sales by region Regional development of sales [€ m] -2% Organic sales North America Europe 2,722 2,659 growth 20% Europe 956 0% 959 +1% 36% North America 562 -7% 525 -1% 37% 8% Emergin
Slide 7: We have added scale while strengthening the attractiveness of assets in our portfolio
We have added scale while strengthening the attractiveness of assets in our portfolio 2002 revenues €7.5 bn Transformation volume 2012 revenues €11.2 bn Laboratory Distribution - + Merck Millipore Life Science Products* Millipore merged Analytics & Reagents Performance Electronic Chemicals - Materia
Slide 8: Our stronger portfolio has enabled us to fundamentally improve our profitability
Our stronger portfolio has enabled us to fundamentally improve our profitability Merck Group total revenues and adjusted EBIT margin* 2002-2011 Acquisition of Millipore €m Acquisition of Serono Divestment of Generics 10,276 adj. EBIT 10,000 margin* 9,291 30% 8,000 7,473 7,558 7,747 7,202 7,057 6,259
Slide 9: Agenda
Agenda The Merck Group Transforming the company Business overview on Merck Serono Financials and guidance
Slide 10: Portfolio evolution improved our profitability structure, but further potential remains
Portfolio evolution improved our profitability structure, but further potential remains Assessment of long-term financial performance relative to peers Sales growth Gross margin SG&A R&D productivity Merck Serono Consumer Health Performance Materials Merck Millipore above peers in-line with peers be
Slide 11: We now focus on growth
We now focus on growth Transformation process 2012-2018 2012 2013 2014 2015 2016 - 2018 Efficiency De-complex organization Optimize cost structure Increase R&D productivity Organic growth Exploit leading market positions Execute selected bolt-on acquisitions Portfolio No portfolio divest
Slide 12: New management in key positions and across the entire organization
New management in key positions and across the entire organization Management changes Divisions Merck Serono Corporate Head of Merck Serono Head of Head of Head of Head of Consumer Chief Operating Merck Serono Corporate Merck Millipore Corporate HR Health Officer Development Controlling Merck Group
Slide 13: Fit for 2018: Strict implementation to yield ~€385 m savings until 2018
Fit for 2018: Strict implementation to yield ~€385 m savings until 2018 Net annual savings Savings 2012 2013 2014 2015 2016 2017 Total MS 100 250 300 300 CH 10 15 25 25 PM 5 10 20 20 MM 5 10 20 30 40 40 Total 115 280 355 365 375 385 385 Costs* 463 229 110 15 817 * Fit for 2018 one-time costs on EBIT
Slide 14: 9M 2013 – Transformation well on track
9M 2013 – Transformation well on track Sales [€ m] EBITDA pre [€ m] EPS pre [€] 0% +13% +20% +4% organic 8,029 8,064 2,458 2,175 6.66 5.56 9M 2012 9M 2013 9M 2012 9M 2013 9M 2012 9M 2013 14
Slide 15: Agenda
Agenda The Merck Group Transforming the company Business overview on Merck Serono Financials and guidance
Slide 16: Merck Serono – Key strengths
Merck Serono – Key strengths Addressing therapeutic areas with high unmet medical needs Specialty pharma growth of ~5% Business Global leader in Multiple Sclerosis, Oncology and Fertility characteristics Less risk from “patent cliff” Development and manufacturing of biologics Clear Strong
Slide 17: Rebif continues to be an important asset
Rebif continues to be an important asset Regional sales evolution [€ m] Rebif performance Rebif sales decline to €460 m in Q3 driven by volume decreases and FX, mitigated by U.S. price increases North America Q3 drivers New oral competitors main factor of U.S. volume declines Price Price 300 inc
Slide 18: Erbitux – outstanding performance in Emerging Markets and Japan drive organic growth
Erbitux – outstanding performance in Emerging Markets and Japan drive organic growth Erbitux sales by geography Erbitux performance Organic sales growth of 8% result in +8% Q3 yoy [€ m] organic growth reported sales of €223 m in Q3 250 Reported sales stable versus prior year as organic growth is
Slide 19: Merck Serono – a balanced portfolio with Fertility, Endocrinology and GM driving organic growth
Merck Serono – a balanced portfolio with Fertility, Endocrinology and GM driving organic growth Q3 2013 global sales by franchise Fertility +6%* Endocrinology +6%* 54% 46% General Medicine +12* Rebif & Erbitux All other Merck Serono products Mature “golden” franchises as key pillar for sustained gro
Slide 20: Agenda for value creation and for continuous improvement of business platform
Agenda for value creation and for continuous improvement of business platform Portfolio review Improve R&D Increased externalization of development effectiveness Strengthen early-stage pipeline / In-licensing Enhance biomarker / stratified medicine Focus on opera- Review cost structure tional excell
Slide 21: Examples of access to external capabilities
Examples of access to external capabilities Platform to discover a novel class of antibody derived therapeutic proteins Collaborations in the therapeutic areas of immunology, oncology and osteoarthritis Currently 2 projects in pre-clinical testing Research Collaboration focusing on lead disc
Slide 22: Increased in-licensing has enriched the pipeline
Increased in-licensing has enriched the pipeline Phase I Phase II Phase III In-licensing activity renewed since arrival of new Merck Serono TH-302 (cancer) Sym 004 (SSCHN) TH-302 (PC) management Sym 004 (mCRC) Pimasertib (MM) TH-302 (STS) Interested in predominantly phase I/II Pimasertib/PI3K (c
Slide 23: Merck Serono pipeline more balanced
Merck Serono pipeline more more balanced Phase I Phase II Phase III Dominated by phase III projects, using up large parts of the resources L-BLP25 (NSCLC) Cilengitide (GBM) Early-stage pipeline January ARX 201(GHD) Erbitux (BC) Erbitux (aCC) Erbitux (GC) too light 2011 Pimasertib (Cancer) IMO-20
Slide 24: Alliance with Dr. Reddy’s: Merck enters growing biosimilars markets
Alliance with Dr. Reddy’s: Merck enters growing biosimilars markets Creation of a powerful biosimilars platform Rationale Biosimilars market is attractive Focus on monoclonal antibodies in oncology Strength in biopharma Strength in generics Co-development agreement between Merck Serono and Dr.
Slide 25: Agenda
Agenda The Merck Group Transforming the company Business overview on Merck Serono Financials and guidance
Slide 26: 9M 2013: Jump in profitability fueled by Merck restructuring
9M 2013: Jump in profitability fueled by Merck restructuring [€ m] 9M 2013 9M 2012 Δ 9M 2013 Sales 8,064 8,029 0% Good organic sales growth of 4% is being offset by FX leading to EBITDA pre 2,458 2,175 13% stable top line development Margin (% of sales) 30.5% 27.1% 340 bps EBITDA pre margin upli
Slide 27: Upgrade of EBITDA pre group guidance
Upgrade of EBITDA pre group guidance Merck guidance for 2013 Sales: ~ €10.7 - 10.9 bn EBITDA pre: ~ €3.2 – 3.25 bn EPS pre: ~ €8.50 - 9.00 On track to deliver 27
Slide 28: Precision of divisional 2013 guidance
Precision of divisional 2013 guidance – Performance Materials and Consumer Health to come out stronger Merck Serono Consumer Health Performance Materials Merck Millipore Sales Sales Sales Sales Moderate organic Moderate organic Moderate organic Stable growth growth growth EBITDA pre EBITDA pre EBITD
Slide 29: MERCK Living Innovation
MERCK Living lnovahon
Slide 30: Appendix
\ MERCK Appendix
Slide 31: Additional financial guidance
Additional financial guidance Further financial details Royalty, license and To decline to: commission income in 2014 ~€180-200 m Corporate EBITDA pre ~€-210 m Underlying tax ratio ~25% to 26% Capex on PPE ~€450 m Hedging / USD assumption 2013 & 2014 hedge ratio around 40% at EUR/USD ~1.30 to 1.35 3
Slide 32: EBITDA pre improves while currency headwinds hurt
EBITDA pre improves while currency headwinds hurt Q3 yoy sales Organic Currency Portfolio Total Merck Serono and Merck Millipore Merck Serono 5% -7% 0% -2% strongest absolute contributors to organic growth Consumer Health 15% -8% 0% 7% All divisions continue to experience Performance Materials -
Slide 33: Q3 2013: Strong margin and profitability expansion amid significant FX headwinds
Q3 2013: Strong margin and profitability expansion amid significant FX headwinds [€ m] Q3 2013 Q3 2012 Δ Q3 2013 dynamics Sales 2,659 2,722 -2% Sales decline slightly as solid organic growth of 5% is being EBITDA pre 831 754 10% more than offset by FX Margin (% of sales) 31.2% 27.7% EBITDA pre i
Slide 34: Reported earnings strong, driven by operational and financial improvements
Reported earnings strong, driven by operational and financial improvements [€ m] Q3 2013 Q3 2012 Δ Reported results EBIT 482 318 51% EBIT increases due to good business performance and lower one-time costs Financial result -52 -58 11% Strong debt deleveraging drives financial result improvement
Slide 35: Merck Serono: Good organic growth combined with strong margin improvement
Merck Serono: Good organic growth combined with strong margin improvement [€ m] Q3 2013 Q3 2012 Comments Sales XXX 1,483 1,511 Solid organic sales growth of 5% driven by Emerging Markets and Japan; FX overshadows underlying growth Marketing and selling -301 -339 Rebif - U.S. volume decline as
Slide 36: Consumer Health: Turnaround fully on track
Consumer Health: Turnaround fully on track [€ m] Q3 2013 Q3 2012 Comments Sales XXX 131 122 High organic sales growth driven by Germany, France & Emerging Markets as well as a soft comparable base, mitigated by FX Marketing and selling -55 -53 Strategic brands (Kytta, Bion 3, Nasivin) show str
Slide 37: Performance Materials: Liquid crystal mix and leaner Pigments & Cosmetics drive margin expansion
Performance Materials: Liquid crystal mix and leaner Pigments & Cosmetics drive margin expansion [€ m] Q3 2013 Q3 2012 Comments Sales XXX 406 446 Sales down due to strong FX and moderate inventory destocking Marketing and selling -35 -38 Healthy demand for continuously improved flagship techno
Slide 38: Merck Millipore: Resilient portfolio delivers solid sales and profitability
Merck Millipore: Resilient portfolio delivers solid sales and profitability despite difficult environment [€ m] Q3 2013 Q3 2012 Comments Sales XXX 639 643 Volume and price increases in Process and Lab Solutions compensate for U.S. sequestration pressure in Bioscience (-8%*) Marketing and selling
Slide 39: Balance sheet: Deleveraging continues
Balance sheet: Deleveraging continues [€ m] Sept 30, 2013 Dec 31, 2012 Sept 30, 2013 Dec 31, 2012 Current assets 7,374 6,626 Net equity 10,781 10,415 Cash and cash equivalents 915 730 Current liabilities 4,080 4,562 Marketable securities and financial assets 2,392 1,798 Current financial liabilities
Slide 40: Another quarter of strong cash generation
Another quarter of strong cash generation [€ m] Q3 2013 Q3 2012 Δ Cash flow drivers Profit after tax 343 189 154 High profit after tax due to strong underlying business performance D&A 315 343 -28 and lower restructuring charges Changes in provisions 32 121 -88 Lower amortization from Avonex Cha
Slide 41: Merck Serono and Performance Materials key contributors to EBITDA pre increase
Merck Serono and Performance Materials key contributors to EBITDA pre increase 9M yoy sales Organic Currency Portfolio Total Solid organic growth within all Merck Serono 4% -4% 0% 0% divisions with Merck Serono and Merck Millipore as highest Consumer Health 8% -4% 0% 3% absolute contributors Perfo
Slide 42: Merck Serono: Good organic growth and swift cost savings implementation boost margin
Merck Serono: Good organic growth and swift cost savings implementation boost margin [€ m] 9M 2013 9M 2012 Comments Sales XXX 4,468 4,474 Sales virtually stable as ongoing good organic momentum in Emerging Markets is being offset by adverse currency effects Marketing and selling -965 -1,030 Re
Slide 43: Merck Serono organic growth by product
Merck Serono organic growth by product Q3 2013 organic sales growth [%] by key products [€ m] 9M 2013 organic sales growth [%] by key products [€ m] XXX XXX 460 -3% 1.413 +2% 499 1.421 223 +8% 659 +5% 224 664 137 +1% 438 -2% 145 458 100 +19% 296 +8% 91 288 98 +8% 302 +8% 100 295 61 +1% 175 -3% 6
Slide 44: General Medicine continues to expand in Emerging Markets
General Medicine continues to expand in Emerging Markets while Fertility and Endocrinology remain flat Sales evolution Q3 drivers Fertility Q3 drivers Fertility growing organically by 6% [€ m] driven by its diversified portfolio and 210 strong Emerging Markets presence, 180 Organic mitigated by so
Slide 45: Merck Serono pipeline
Merck Serono pipeline Phase I Phase II Phase III In registration ATX-MS-1467 Ceralifimod (ONO-4641) TH-302 Erbitux® (cetuximab) Immune tolerizing agent Oral S1P receptor modulator Hypoxia-targeted drug Anti-EGFR mAb Multiple sclerosis Multiple sclerosis Soft tissue sarcoma Squamous cell carc
Slide 46: Consumer Health: Healthy organic growth and execution of efficiency measures
Consumer Health: Healthy organic growth and execution of efficiency measures drive profitability [€ m] 9M 2013 9M 2012 Comments Sales XXX 363 351 Higher sales on strong organic increase mitigated by adverse currency effects Marketing and selling -159 -159 Solid organic growth in Emerging Marke
Slide 47: Performance Materials: Pigments restructuring and liquid crystals leadership
Performance Materials: Pigments restructuring and liquid crystals leadership increase profitability [€ m] 9M 2013 9M 2012 Comments Sales XXX 1,259 1,259 Sales stable as organic growth and currency headwinds offset each other Marketing and selling -107 -106 Focus on improving existing and devel
Slide 48: Merck Millipore: Proven resilience amid U.S. sequestration and FX headwinds
Merck Millipore: Proven resilience amid U.S. sequestration and FX headwinds [€ m] 9M 2013 9M 2012 Comments Sales XXX 1,974 1,945 Price and volume increases are mitigated by FX mainly due to the devaluation of the Japanese yen Marketing and selling -514 -502 Ongoing healthy demand from biopharm
Slide 49: Solid operating cash flow in 9M 2013
Solid operating cash flow in 9M 2013 [€ m] 9M 2013 9M 2012 Δ Cash flow drivers Profit after tax 928 303 624 Higher profit after tax due to good operational business performance; D&A 997 1,037 -41 prior year included restructuring Changes in provisions 35 551 -516 Changes in provisions for 9M 201
Slide 50: External growth criteria
External growth criteria Portfolio fit: Innovations for specialty markets Strategic Complementary to business model: Customer criteria intimacy and leading positions Cultural fit EPS accretive in one to three years for commercial asset acquisitions Financial Strong investment grade rating maintained
Slide 51: Financial M&A framework
Financial M&A framework Perspective on leverage Perspective on financing Rating: Strong investment High likelihood grade rating at any time Financial volume Cash Debt Net debt/EBITDA in corridor of Merck has sufficient 1.5x – 2.5x headroom Divestments Equity FY 2013 EBITDA pre guidance: €3.2 - 3.25
Slide 52: Comfortable liquidity situation through broad mixture of financing sources
Comfortable liquidity situation through broad mixture of financing sources Financial profile Bond Maturity Profile as of 31 October 2013 [€ m] A ratings: Moody’s A3 (stable outlook) and S&P A (stable outlook) 1,350 Cash and marketable securities 1,350 of ~€3.3 bn Completely undrawn syndicated
Slide 53: Changes in FX rates impact top and bottom lines
Changes in FX rates impact top and bottom lines Sensitivities* of top 3 foreign currencies - Merck Group, unhedged Currency management Exposure from booked revenues and Group Sales: decrease by ~€15 m invoices, receivables and liabilities, Deviation Impact 0.01 U.S. dollar U.S. $ increase versus e
Slide 54: Corporate Responsibility has always been an integral part of Merck’s corporate culture
Corporate Responsibility has always been an integral part of Merck’s corporate culture Merck Corporate Responsibility UN Global Compact, Responsible Care, Merck Social Charter, Code of Conduct Products Environment People “Merck products serve people’s “In the manufacture of our products, “We strengt
Slide 55: Merck continues to improve its culture of Corporate Responsibility
Merck continues to improve its culture of Corporate Responsibility Targets on responsibility measure for products and people Product safety Diversity Establish a global Implementation of Increase % of women 2010 = 22% Status Status Goal Goal hazard and risk REACH, GHS/CLP in management to at 201
Slide 56: One-time items in Q3 2013
One-time items in Q3 2013 One-time items on EBIT [€ m] Q3 2013 Q3 2012 One-time items thereof D&A One-time items thereof D&A Merck Serono 36 15 94 11 Consumer Health 1 0 8 0 Performance Materials -5 0 3 0 Merck Millipore 13 0 7 0 Corporate & Other 4 0 -8 0 Total 49 15 104 11 56
Slide 57: One-time items in 9M 2013
One-time items in 9M 2013 One-time items on EBIT [€ m] 9M 2013 9M 2012 One-time items thereof D&A One-time items thereof D&A Merck Serono 93 45 326 42 Consumer Health 0 0 14 0 Performance Materials 3 1 -11 0 Merck Millipore 31 0 22 0 Corporate & Other 34 0 177 0 Total 161 46 528 42 57
Slide 58: Financial Calendar
Financial Calendar Date Event March 6, 2014 Q4/FY 2013 Earnings Release May 9, 2014 Annual General Meeting May 15, 2014 Q1 2014 Earnings Release August 7, 2014 Q2 2014 Earnings Release November 13, 2014 Q3 2014 Earnings Release 58
Slide 59: Investor Relations contact details
Investor Relations contact details Constantin Fest Alessandra Heinz Svenja Bundschuh Head of Investor Relations Assistant Investor Relations Assistant Investor Relations +49 6151 72-5271 +49 6151 72-3321 +49 6151 72-3744 constantin.fest@merckgroup.com alessandra.heinz@merckgroup.com svenja.bundschuh