Merck Kgaa · XETR:MRK
Merck Kgaa — Merck KGaA, Darmstadt, Germany — Q2 2017 Earnings Presentation
47 slides from Merck Kgaa's earnings presentation, Aug 3, 2017
Slide 1: Driving Future Growth
DRIVING FUTURE GROWTH Merck KGaA, Darmstadt, Germany Q2 2017 results Stefan Oschmann, CEO Marcus Kuhnert, CFO Walter Galinat, CEO Performance Materials August 3, 2017
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: Cautionary Note Regarding 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 Deep dive: Performance Materials Guidance 4
Slide 5: Executive Summary
oO} EXECUTIVE SUMAMARY Sa aan
Slide 6: Highlights
Highlights Healthcare – sound core business and positive CHMP* opinion for Mavenclad & Bavencio Operations Life Science – solid growth dynamics against tough comps; Sigma integration on track Performance Materials – Liquid Crystal market share normalization increasingly visible Sales growth of 2.3%;
Slide 7: Investments in Healthcare and softness in Liquid Crystals 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 8: 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 9: Financial Overview
FINANCIAL OVERVIEW
Slide 10: 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 11: 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 12: Healthcare: Investments in future growth 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 13: Life Science: Solid organic growth and synergy realization drive EBITDA pre
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 14: Performance Materials: Ongoing LC market share normalization burdens profitability
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 15: Balance sheet – deleveraging in progress after Sigma acquisition
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 16: Healthy operating cash flow supported by lower tax payments
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 17: Deep Dive: Performance Materials
DEEP DIVE: PERFORMANCE MATERIALS
Slide 18: Market shares are returning to normal levels
Market shares are returning to normal levels Merck KGaA, Darmstadt, Germany 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 imp
Slide 19: 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 20: Leveraging capabilities to address shift towards more dynamic Chinese market
Merck KGaA, Darmstadt, Germany 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 ma
Slide 21: Four-pillar-strategy drives Performance Materials to 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 22: 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 23: Executive summary
Executive summary Liquid Crystals market shares are returning to historically normal levels Chinese display market will increase importance Profitability will reflect shifting business composition, but will remain industry-leading Performance Materials is set up to create value and generate growth i
Slide 24: Guidance
GUIDANCE
Slide 25: 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 25
Slide 26: 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 27: Slide 27
Slide 28: Appendix
APPENDIX
Slide 29: 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 30: 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 31: Well-balanced maturity profile related to Sigma-Aldrich
Well-balanced maturity profile reflects capital market transactions related to Sigma-Aldrich Maturity profile as of June 30, 2017 2.4% 4.5% Coupon 2.95% [€ m/US $] 750 1.375% 3.25% 4.25% 2.625% 0.75% 1,000 E+23bps 70 1,600 1,350 3.375% 1.7% 1,000 700 800 400 550 500 2017 2018 2019 2020 2021 2022 202
Slide 32: Life Science and Healthcare drive growth and profitability
Life Science and Healthcare drive growth and profitability H1 2017 YoY net sales • Healthcare reflects strong growth in General Medicine, especially Glucophage in China Organic Currency Portfolio Total • Organic performance in Life Science driven Healthcare 3.5% 1.0% -1.0% 3.5% by all business units
Slide 33: H1 2017: Overview
H1 2017: Overview Key figures Comments [€m] H1 2016 H1 2017 Δ • EBITDA pre increase driven by royalty Net sales 7,470 7,752 3.8% income swap, synergies and organic performance EBITDA pre 2,242 2,334 4.1% • EPS pre increases due to higher Margin (in % of net sales) 30.0% 30.1% EBITDA pre and improved
Slide 34: Reported figures reflect solid business performance amid exceptionals
Reported figures reflect solid business performance amid exceptionals Reported results Comments [€m] H1 2016 H1 2017 Δ • EBIT reflects increased EBITDA pre EBIT 1,399 1,382 -1.2% and lower integration costs; LY included Kuvan disposal gain Financial result -190 -142 -25.3% • Improved financial resul
Slide 35: Healthcare: Royalty swap and milestone payments drive profitability
Healthcare: Royalty swap and milestone payments drive profitability Healthcare P&L Comments [€m] H1 2016 H1 2017 • Rebif still impacted by competition in U.S. & EU, while U.S. pricing and Q2 inventory stocking as well as PDP* in Brazil support performance Net sales 3,400 3,518 • Erbitux shows slight
Slide 36: 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 37: Rebif: Relief in the U.S. – competitive ramp-up in Europe ongoing
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 €425m 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 38: 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 39: Strong organic growth of General Medicine driven by all major products
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 40: Clinical pipeline
Clinical 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 Aveluma
Slide 41: Life Science: Ongoing synergy realization drives margin progression
Life Science: Ongoing synergy realization drives margin progression Life Science P&L Comments [€m] H1 2016 H1 2017 • Process Solutions benefits from robust demand for single-use, services & virus removal, against tough comps & soft start at some larger accounts Net sales 2,826 2,977 -833 -891 • Appl
Slide 42: Performance Materials: Liquid Crystals sales decline burdens profitability
Performance Materials: Liquid Crystals sales decline burdens profitability Performance Materials P&L Comments [€m] H1 2016 H1 2017 • Organic growth of Integrated Circuit Materials, Pigments and OLED cannot offset Liquid Crystal sales decline Net sales 1,243 1,257 -116 -126 • Ongoing LC market share
Slide 43: Healthy operating cash flow reflects royalty swap and tax effects
Healthy operating cash flow reflects royalty swap and tax effects H1 2016 – cash flow statement Cash flow drivers [€m] H1 2016 H1 2017 Δ • LY profit after tax includes gain from Profit after tax 907 946 39 Kuvan disposal, which is neutralized in other operating activities D&A 952 828 -124 • D&A redu
Slide 44: 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 44 Totals may not add up due to rounding
Slide 45: Exceptionals in H1 2017
Exceptionals in H1 2017 Exceptionals in EBIT [€m] H1 2016 H1 2017 Exceptionals thereof D&A Exceptionals thereof D&A Healthcare -251 71 -49 -67 Life Science 183 0 62 3 Performance Materials 13 0 23 7 Corporate & Other 17 0 31 0 Total -38 71 66 -57 45 Totals may not add up due to rounding
Slide 46: 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 46
Slide 47: 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 [email protected] [email protected] [email protected] ANNETT WEBER NILS VON BOT
Merck KGaA, Darmstadt, Germany — Q2 2017 Earnings Presentation on 6ix