Merck KGaA · XETR:MRK

Merck KGaA — Berenberg and Goldman Sachs German Corporate Conference 2012

48 slides from Merck KGaA's conference presentation, Sep 26, 2012

  1. Slide 1: Berenberg and Goldman Sachs German Corporate Conference

    Berenberg and Goldman Sachs German Corporate Conference Transformation starts to yield first results Joshua Young Head of Investor Relations Munich, September 26, 2012

  2. 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

  3. Slide 3: Agenda

    Agenda 1. Strategy Update – Business Portfolio Strengthened 2. Q2 Financial Update 3. FY 2012 Guidance 3

  4. Slide 4: We have added scale while strengthening the attractiveness of assets in our portfolio

    Merck Group We have added scale while strengthening the attractiveness of assets in our portfolio 2002 Revenues €7.5 bn Transaction volume 2011 Revenues €10.3 bn Laboratory Divestments Millipore Merck Millipore Distribution Life Science Products Performance Materials Analytics & Reagents CropBioscie

  5. Slide 5: Our stronger portfolio has enabled us to fundamentally improve our profitability

    Merck Group Our stronger portfolio has enabled us to fundamentally improve our profitability Merck Group total revenues and adjusted EBIT margin* 2002–2011 Acquisition of Millipore Acquisition of Serono adj. EBIT €m 10,276 margin* Divestment of Generics 10,000 9,291 7,747 30% 8,000 7,473 7,558 7,202

  6. Slide 6: Portfolio evolution improved our profitability structure, but further potential remains

    Merck Group Portfolio evolution improved our profitability structure, but further potential remains ^ Assessment of long-term financial performance relative to peers Sales Gross R&D SG&A growth margin productivity Merck Serono Consumer Health Performance Materials Merck Millipore above peers in-line

  7. Slide 7: We now focus on efficiency

    Merck Group We now focus on efficiency Transformation process 2012-2018 2012 2013 2014 2015 2016-18 Efficiency  De-complex organization  Optimize cost structure  Increase R&D productivity Organic growth  Exploit leading market positions  Execute selected bolt-on acquisitions Portfolio  No port

  8. Slide 8: Savings will predominantly ramp up in 2013 and 2014

    Merck Serono Restructuring Savings will predominantly ramp up in 2013 and 2014 Net €300m of savings Impact of savings by year €m  Close down R&D hub Geneva 300 R&D  Reduce fixed costs +100 200  Trim HQ costs  Reduce admin & marketing along +150 SG&A with globalization of organization 50  Ensure

  9. Slide 9: We expect to deliver €25 million in net savings

    Consumer Health We expect to deliver € 25 million in net savings Restructuring initiatives in CH Timing of net cost savings by year [€ m] 2012 2013 25 Subsidiary closure / new business model 15 Optimize M&S / G&A Align R&D 5 Consolidate assets & operations savings 2012E 2013E 2014E We will incur ~€

  10. Slide 10: Merck strives for realistic Group targets

    Merck Group Merck strives for realistic Group targets Sales (€m) EBITDA pre (€m) EPS pre (€) +4% - 8% +10% - 17% +20% - 32% 10,350 - 10,700 3,000 - 3,200  €8.20 - €9.00 9,906 2,729 €6.83 2011 2014E 2011 2014E 2011 2014E 27.5%* 29% – 30%* * % of sales Assumptions:  Unchanged economic environment

  11. Slide 11: Agenda

    Agenda 1. Strategy Update – Business Portfolio Strengthened 2. Q2 Financial Update 3. FY 2012 Guidance

  12. Slide 12: Strong sales growth and cost management drive EBITDA pre improvement

    Merck Group Strong sales growth and cost management drive EBITDA pre improvement [€ m] Q2 2012 Q2 2011 Δ Comments Sales 2,743 2,470 11%  Sales growth of 11% reflects 5% organic growth, 5% benefit from changes in EBITDA pre 747 655 14% FX, 1% from acquisitions Margin (% of sales) 27.2% 26.5%  EBITD

  13. Slide 13: Strong top-line growth stemming from organic and FX contribution

    Merck Group Strong top-line growth stemming from organic and FX contribution Q2 yoy sales Organic Currency Acq. Total Q2 drivers Merck Serono 7% 4% 0% 11%  Solid sales increase by Consumer Health 1% 2% 0% 3% 11% Perf. Materials 4% 10% 0% 14%  Main drivers for sales growth are organic (+5%) Merck M

  14. Slide 14: Q2 2012: Merck Serono sales drive increase in North America and Emerging Markets

    Merck Group Q2 2012: Merck Serono sales drive increase in North America and Emerging Markets Europe -2% 36% North America +12% ROW** +7% 20% Emerging Markets* +10% 9% 35% Growth rates reflect organic sales growth Emerging Markets = Latin America + Asia (w/o Japan) ** ROW = Japan, Oceania, Australia,

  15. Slide 15: Higher Rebif and Fertility sales, tight cost control and efficiencies drive performance

    Merck Serono Higher Rebif and Fertility sales, tight cost control and efficiencies drive performance [€ m] Q2 2012 Q2 2011 Δ Comments Total Revenues 1,649 1,480 11%  Sales growth of 11% reflects Sales 1,546 1,395 11% 7% organic growth and 4% Royalty and Comm. Income 102 84 21% benefit from FX Gross

  16. Slide 16: Healthy growth across nearly all brands

    Merck Serono Healthy growth across nearly all brands Organic sales growth by key products [€ m] Comments  Rebif: Strong performance in US due to price 423 +9.6% increases and stabilizing volumes; sales in Europe Rebif 492 flat due to pricing pressures off-set by volume increase Erbitux 204 +7.1% 

  17. Slide 17: Successful roll-out of family of pens supports double-digit organic sales growth in Fertility

    Merck Serono - Fertility Successful roll-out of family of pens supports double-digit organic sales growth in Fertility Comments  Global sales of €215 m in Q2 [€ m] y-o-y organic 2012 growth* Second wave: 250  Competitive differentiation Southern and through common delivery Eastern EU Launch platfo

  18. Slide 18: Advancing toward improved performance

    Consumer Health Advancing toward improved performance [€ m] Q2 2012 Q2 2011 Δ Comments Total Revenues 122 118 3%  Sales increase 1% organically, Sales 121 118 3% 2% benefit from FX Royalty and Comm. Income 1 1 -26%  Strong sales growth in Emerging markets Gross Profit 83 80 5% (particular Everyday

  19. Slide 19: Healthy volumes in liquid crystals and positive currency benefit contribute to a sound quarter

    Performance Materials Healthy volumes in liquid crystals and positive currency benefit contribute to a sound quarter [€ m] Q2 2012 Q2 2011 Δ Comments Total Revenues 427 373 14%  Sales grow 4% organically, Sales 426 373 14% and benefit from continued Royalty and Comm. Income 1 0 >100% strong demand

  20. Slide 20: Continued delivery of profitable growth, while investing for the future

    Merck Millipore Continued delivery of profitable growth, while investing for the future [€ m] Q2 2012 Q2 2011 Δ Comments Total Revenues 655 584 12%  Sales growth of 11% (3% Sales 649 583 11% organic growth, 2% acquisition Royalty and Comm. Income 6 1 >100% effect, 6% FX)  All business units contri

  21. Slide 21: Free cash flow benefits from higher profitability, improving working capital, and lower CapEx

    Merck Group Free cash flow benefits from higher profitability, improving working capital, and lower CapEx [€ m] Q2 2012 Q2 2011 Δ Comments Profit after tax -61 -87 26  D&A reduced due to lower one-time items Depreciation & Amortization 352 587 -235  Q2 2011: impairment LSB, write-off safinamide Ch

  22. Slide 22: Better working capital management shows results

    Merck Group Better working capital management shows results Working capital to sales development Comments  Gradual improvement in working capital to sales 2,890 2,895 2,918 2,919 2,890 2,736  Division leaders now 29.7 29.7 29.7 29.5 incentivized on working 28.9 capital ratios 26.7 Mar 11 Jun 11 Se

  23. Slide 23: Agenda

    Agenda 1. Strategy Update – Business Portfolio Strengthened 2. Q2 Financial Update 3. FY 2012 Guidance 23

  24. Slide 24: Guidance FY 2012

    Merck Group Guidance FY 2012 Assumptions:  Current economic environment unchanged  Reported numbers will still be burdened by one-time costs, while the majority of costs have been taken in Q2 already  Underlying tax rate around 25-26%  H2 2012: €/US$ = 1.25; €/CHF = 1.20 Divisional EBITDA pre 20

  25. Slide 25: Appendix

    ' \ MERCK ' APPENDIX

  26. Slide 26: Strong sales growth and cost management drive EBITDA pre improvement

    Merck Group Strong sales growth and cost management drive EBITDA pre improvement [€ m] Q2 2012 Q2 2011 Δ Comments Total Revenues 2,852 2,555 12%  Sales growth of 11% reflects Sales 2,743 2,470 11% 5% organic growth, 5% benefit Royalty income 109 86 27% from changes in FX, 1% from acquisitions Gross

  27. Slide 27: More than €5 billion of sales in H1 2012

    Merck Group More than €5 billion of sales in H1 2012 [€ m] H1 2012 H1 2011 Δ Comments Total Revenues 5,497 5,119 7%  Sales increased 7% Sales 5,307 4,947 7% Royalty income 190 172 11% – Organic sales growth: 3% Gross Profit 3,941 3,720 6% – FX benefit: 4% Margin (% of sales) 74.3% 75.2% – Acquisiti

  28. Slide 28: One-time effects influence year-over-year profitability comparisons

    Merck Group One-time effects influence year-over-year profitability comparisons [€ m] H1 2012 H1 2011 Δ Comments  Reported EBIT H1 2012 EBIT 334 505 -34% adjusted by €387 m due to restructuring related charges Financial Result -136 -147 -7% – Q1 2011 included Crop BioScience gain  Financial result

  29. Slide 29: Balance Sheet: A strong financial backbone

    Merck Group Balance Sheet: A strong financial backbone [€ m] Jun 30 2012 Dec 31 2011 Δ Comments Total Assets 21,896 22,122 -1%  Cash & other liquid funds increased due to inflow from operating business Equity 10,534 10,494 0%  Partly off-set by bond repayment of €500 m in Cash & other liquid funds

  30. Slide 30: Net cash flow from operating activities doubled in H1 2012 vs. H1 2011

    Merck Group Net cash flow from operating activities doubled in H1 2012 vs. H1 2011 [€ m] H1 2012 H1 2011 Δ Comments Profit after tax 115 255 -140  Significant progress made in working capital Depreciation & Amortization 695 940 -245 management  Provisions increased due Changes in working capital 2

  31. Slide 31: Q2 2012 reconciliation to adjusted results

    Merck Group Q2 2012 reconciliation to adjusted results [€m] Q2 2012 Q2 2011 EBIT 23 -24 Depreciation & Amortization 352 587 Regular depreciation & amortization 114 109 Amortization of purchased intangible assets 216 210 Impairments 23 268 EBITDA 375 563 One-time items 372 92 M&A costs 0 0 Restructur

  32. Slide 32: 2012 YTD Reconciliation to adjusted results

    Merck Group 2012 YTD Reconciliation to adjusted results [€m] H1 2012 H1 2011 EBIT 334 505 Depreciation & Amortization 695 940 Regular depreciation & amortization 233 216 Amortization of purchased intangible assets 431 406 Impairments 31 319 EBITDA 1,028 1,445 One-time items 393 -54 M&A costs 0 0 Res

  33. Slide 33: We have made significant progress in implementing efficiency measures

    Restructuring update We have made significant progress in implementing efficiency measures 2012 2013 2014 2015 2016-18  Restructuring targets for Merck Serono and Merck Group Efficiency  Geneva headquarters closure  Restructuring targets for Consumer Health  Refreshed strategy for Rebif and othe

  34. Slide 34: Growth in the United States drives overall sales

    Merck Serono - Rebif Growth in the United States drives overall sales Comments [€ m] North America Price Price increase  Global sales of €492 m in Q2 300 increase 2012  Price  Strong performance in US  200 Volume  Market shares stabilizing 100  Currency  Sales in Europe flat (-0.4% organic) d

  35. Slide 35: Emerging Markets strong, European sales weaker due to scale-down in Southern EU

    Merck Serono - Erbitux Emerging Markets strong, European sales weaker due to scale-down in Southern EU Comments Q2 y-o-y  Global sales of €226 m in Q2 [€ m] organic 2012 growth 250,0  Patient shares above 50% in KRAS wt mCRC and SCCHN +28.5% in key EU markets 200,0  Growth 2012E: 1 – 4 % organic

  36. Slide 36: Pipeline

    Merck Serono Pipeline Phase I Phase II Phase III In registration  ATX-MS-1467  ONO – 4641  Cilengitide  Erbitux ® (cetuximab) Immune tolerizing agent Oral S1P receptor modulator Integrin inhibitor Anti-EGFR mAb Multiple sclerosis Multiple sclerosis Glioblastoma Non-small cell lung cancer (EMA) 

  37. Slide 37: Expected timelines of current pipeline projects

    Merck Serono Expected timelines of current pipeline projects Project Indication Trial Datapoint Timeline Oncology Stimuvax NSCLC START PIII final Q1 2013 Cilgengitide Glioblastoma CENTRIC PIII final H1 2013 TH-302 Pancreatic cancer PIII decision H2 2012 Neurology ONO-4641 Multiple Sclerosis PIII dec

  38. Slide 38: Merck Serono mid-term financial targets

    Merck Pharma Merck Serono mid-term financial targets Sales (€m) EBITDA pre (€m) Assumptions: +2% - 6% +15% - 21%  No new product launches 5,700 - 5,900 1,800 - 1,900  Austerity measures will continue to put pressure on 5.564 developed markets 1.569  Emerging Markets will continue to fuel growth

  39. Slide 39: Consumer Health mid-term financial targets

    Merck Pharma Consumer Health mid-term financial targets Sales (€m) EBITDA pre (€m) Assumptions: +1% - 7% +27% - 53% 75 - 90  Cost Containment, notably: 500 - 530  Efficiencies on fixed cost structure 494  Improvement on sales 59 promotion activities  Exit unprofitable products 2011 2014E 2011

  40. Slide 40: Performance Materials mid-term financial targets

    Merck Chemicals Performance Materials mid-term financial targets Sales (€m) EBITDA pre (€m) Assumptions: ~2% -9% - 0%  Slight margin erosion 620 - 680 (volume up, price down) 1,500 683  No new liquid crystal 1.465 technologies launched 2011 2014E 2011 2014E 46.6%* ~41% – 45%* * % of sales Exploi

  41. Slide 41: The Overall Display Market is Expected to Grow

    Performance Materials The Overall Display Market is Expected to Grow Industry forecast of flat panel display surface area by Key Messages technology km²  Flat panel display surface area expected to grow high single +8.8% 232 digit for the next years 216 201  Share of LCD expected to 187 175 remain

  42. Slide 42: Merck Millipore mid-term financial targets

    Merck Chemicals Merck Millipore mid-term financial targets Sales (€m) EBITDA pre (€m) Assumptions: +11% - 15% +11 - 16%  Growth drivers ~620 - 650 ~2,650 - 2,750 predominantly:  Asia 561 2.383  Higher production of biologic drugs  New products  Bolt-on acquisitions  High R&D maintained 2011 20

  43. Slide 43: Leading positions in growing life sciences markets

    Merck Millipore Leading positions in growing life sciences markets Industry attractiveness – Life science tools market projected to grow 4-7% annually – Volumes of biologic drugs will continue to grow rapidly – Growing complexity of science is creating a strong market for laboratory tools providers:

  44. Slide 44: Restructuring costs and net savings targets

    Merck Group Restructuring costs and net savings targets Year 2012E 2013E 2014E Net Cost Related Net Cost Related Net Cost Related [€m] Savings charges Savings charges Savings charges Merck Serono 50 400 200 150 300 50 Consumer Health 5 30 15 10 25 - Total 55 430 215 160 325 50 44

  45. Slide 45: We will incur €600m in restructuring costs

    Merck Serono Restructuring We will incur €600m in restructuring costs Timing of one-time costs Timing of cash outflows 50% €400m 25% R&D 25% €150m SG&A SG&A €50m 2012E 2013E 2014E 2012E 2013E 2014E * GSK, Merck&Co, Sanofi-Aventis Majority Strongofand one-time healthycosts business are cash-related

  46. Slide 46: Ensure effective cash allocation 2012/2013

    Merck Group Ensure effective cash allocation 2012/2013  03/2012: €500m bond (interest rate = 2.125%) Deleveraging  12/2012: €500m bond (interest rate = 3.75%)  09/2013: €750m bond (interest rate = 4.875%) Restructuring  One-time costs 2012-2014: ~€600m  Bolt-on acquisitions 2012/2013 External G

  47. Slide 47: Reliable dividend policy

    Merck Group Reliable dividend policy Dividend Payment Dividend Policy:  2012 - 2014: Target payout ratio: 35-40% of net Minimum income adjusted for one- €1.50 €1.50 Dividend time items (i.e. transfor- €1.25 mation costs)  Stable dividend will be €1.00 assured over next three years despite one-time

  48. Slide 48: Merck Group Merck KGaA Investor Relations

    Merck Group Joshua Young Eva Sterzel Head of Investor Relations +49 6151 72-5355 +49 6151 72-3706 Constantin Fest Dr. Thomas Kornek +49 6151 72-5271 +49 6151 72-7434 Alessandra Heinz Claudia Nickolaus Assistant Investor Relations +49 6151 72-2584 +49 6151 72-3321 Eva Schaefer-Jansen Silke Meyer +49

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