Q Results Conference Call

Transcription

1 Q Results Conference Call Merck Implementation continues Matthias Zachert CFO Merck KGaA Darmstadt, Germany August 6, 2013

2 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 been and will not be registered under the U.S. Securities Act of 1933, as amended (the Securities Act ), and may not be offered or sold in the United States absent registration under the Securities Act or an available exemption from such registration. Note regarding forward-looking statements The information in this document may contain forward-looking statements. Forward-looking statements may be identified by words such as expects, anticipates, intends, plans, believes, seeks, estimates, will or words of similar meaning and include, but are not limited to, statements about the expected future business of Merck KGaA. These statements are based on the current expectations of management of Merck KGaA and E. Merck KG, and are inherently subject to uncertainties and changes in circumstances. Among the factors that could cause actual results to differ materially from those described in the forward-looking statements are changes in global, political, economic, business, competitive, market and regulatory forces. Merck KGaA and E. Merck KG do not undertake any obligation to update the content of this presentation and forward-looking statements to reflect actual results, or any change in events, conditions, assumptions or other factors. All trademarks mentioned in the presentation are legally protected.

3 Agenda Executive overview Business and financial review Q Guidance

4 Q on track Organic sales growth despite more difficult market environment Operations Efficiency programs well on track and Merck Serono HQ divested Margin expansion in nearly all divisions 11% EBITDA pre growth driven notably by Merck Serono Financials EPS pre increase of 18% to 2.26 Continuous net debt reduction to 1.3 bn in H Rating upgrade by S&P to A and by Moody s to A3 A solid quarter 4

5 EBITDA improvement with Merck Serono as key contributor Q2 yoy sales Organic Currency Portfolio Total Merck Serono 2% -3% 0% -1% Consumer Health -1% -4% 0% -5% Performance Materials 5% -4% 0% 1% Merck Millipore 6% -4% 1% 3% Merck Group 3% -4% 0% 0% Q2 yoy EBITDA pre contributors [ m] Merck Millipore and Performance Materials strongest contributors to organic growth All divisions experience currency headwinds, stemming mainly from the US Dollar and the Japanese Yen Merck Serono contributes more than half of Q2 EBITDA pre improvement EBITDA pre Q Merck Serono Consumer Health Performance Materials Merck Millipore Corporate & Other EBITDA pre Q Corporate and Other contains hedging gains in current quarter and losses in previous year 5

6 North America and Emerging Markets drive organic growth, reported sales burdened by FX headwinds Merck Group Q sales by region Regional development of sales [ m] XXX North America Europe XXX 0% 2,743 2,744 Organic sales growth 21% 36% Europe 0% % North America % % Emerging Markets 35% 8% Japan & Others * Emerging Markets % % Japan & Others * 238-9% % Q Q * Australia/Oceania, Africa 6

7 Agenda Executive overview Business and financial review Q Guidance

8 Q2 2013: Stringent savings implementation and operational performance drive EBITDA pre [ m] Q Q Δ Q dynamics Sales EBITDA pre Margin (% of sales) EPS pre [ ] Operating cash flow 2, % , % % 11% 18% -36% Sales stable, organic sales improvement and portfolio offset by FX impact EBITDA pre increase driven by Merck Serono, Performance Materials and ~ 20 m yoy hedging benefit [ m] Net financial debt Jun 30, ,316 Dec 31, ,926 Δ -32% 2012 operating cash flow driven by exceptional working capital improvement Working capital Employees 2,418 38,122 2,360 38,847 2% -2% Cash generating nature of portfolio drives net debt reduction Over 600 m net financial debt reduction in six months 8

9 Reported earnings jump [ m] Q Q Δ Reported results EBIT >100% Prior year EBIT burdened by one-time restructuring items Financial result % Financial result benefits from gross debt reduction Profit before tax n.m. Q income tax reflects one-off items Income tax >100% Reported EPS increases on higher EBIT and lower one-time items Tax ratio (%) 24% -30% Net income n.m. EPS ( ) n.m. 9

10 Merck Serono: Operational management and fast savings implementation drive profitability [ m] Q Q Comments Sales XXX Marketing and selling Admin R&D EBIT EBITDA EBITDA pre Margin (% of sales) Sales bridge 1, % 1, % Organic growth overcompensated by adverse currency effects leading to slight reduction in reported sales Royalties down due to expiry of Avonex from May onwards Rebif price increases & RebiDose launch amid tougher competition Erbitux stable with solid momentum from Japan due to head and neck launch and modest performance in Europe Continued cost management in R&D, previous year contains EXPAND and PETACC-8 termination charges Visible EBITDA increase driven by cost control in marketing and selling, R&D, product mix and production yields Q share of group sales XXX 1,546 m 2% -3% 0% 1,531 m XXX % % Merck Serono Q Organic Currency Portfolio Q

11 Consumer Health: Starting to build a good track record, despite high comparables [ m] Q Q Comments Sales XXX Marketing and selling Admin R&D EBIT EBITDA EBITDA pre Margin (% of sales) Sales bridge % % Slight sales decline on tough Q comparable and FX headwind Softer Europe notably in southern countries being somewhat compensated by good contribution of German market Good demand for vitamins (Bion 3) and mobility products (Kytta), while some Seven Seas export products have been discontinued EBITDA pre margin expansion driven by better resource allocation and cost containment Q share of group sales XXX 121 m -1% -4% 0% 116 m XXX 15.3% Consumer 4% Health Q Organic Currency Portfolio Q

12 Performance Materials: A unique quarter [ m] Q Q Comments Sales XXX Marketing and selling Admin R&D EBIT EBITDA EBITDA pre Margin (% of sales) Sales bridge % % Sales increase as strong demand for liquid crystals overcompensates currency headwinds and price declines PS-VA with strong momentum, while IPS benefits relative to TN-TFT Pigments with solid performance in decorative materials driven by healthy demand for Xirallic products Continued strong demand from China supported by subsidies, which ended Q Flagship liquid crystal technologies and better cost structure in Pigments drive profitability Q share of group sales XXX 426 m 5% -4% 0% 431 m XXX 16% Performance Materials Q Organic Currency Portfolio Q

13 Weeks of inventory Supply chain levels expected to damp Liquid Crystals sales in H Quarterly weeks of inventory delta at panel / set makers over last two years * 3 Excess Inventory dynamics Downstream inventory levels high Timing of destocking is uncertain, but will occur 2 Balanced Tightness Destocking will occur but underlying growth trends remain intact * Illustration, source: GfK; April

14 Merck Millipore: Good organic quarter amid U.S. sequestration and currency headwinds [ m] Q Q Comments Sales XXX Marketing and selling Admin R&D EBIT EBITDA EBITDA pre Margin (% of sales) Sales bridge % % Sales increase driven by organic growth of all business units and portfolio, mitigated by negative currency effects (especially JPY) Demand for single use products and biopharma production orders fuels Process Solutions Lab Solutions growth supported by good performance in Biomonitoring and Lab Water Bioscience burdened by U.S. health budget constraints Slight EBITDA pre increase, despite tighter market conditions Q share of group sales XXX 649 m 6% -4% 1% 666 m XXX Merck 24% Millipore Q Organic Currency Portfolio Q

15 Significant devaluation of Japanese Yen weighs on Q results Development of Japanese Yen and impact on Merck s businesses Divisional currency effects JPY/ EUR average quarterly rate 80 1 Apr Q2 1 Jul Q3 1 Oct Q4 1 Jan Q1 1 Apr Q2 1 Jul FY2012: ~ 630 m ~1/3 ~1/3 ~1/3 Merck Group Sales Japan Merck Millipore no local production, no natural hedge, Yen invoicing Performance Materials local production of pigments and LC mixing, Yen invoicing Merck Serono local sales force and production, Yen invoicing Merck Millipore: sales and EBITDA pre hit by softer Yen Performance Materials: sales hit by softer Yen, impact on EBITDA pre partially mitigated by local cost base Merck Serono: sales hit by softer Yen, impact on EBITDA pre partially mitigated by local cost base Consumer Health: no business in Japan 15

16 Balance sheet: A strong foundation [ m] Jun 30, 2013 Dec 31, 2012 Jun 30, 2013 Dec 31, 2012 Current assets 7,482 6,626 Net equity 10,535 10,415 Cash and cash equivalents Marketable securities and financial assets Trade accounts receivable Inventories Other current assets Income tax receivables 864 2,462 2,197 1, ,798 2,115 1, Current liabilities Current financial liabilities Trade accounts payable Other current liabilities Income tax liabilities Current provisions 4,494 1,339 1, ,562 1,091 1,288 1, Non-current assets Intangible assets Property, plant and equipment Non-current financial assets Other non-current assets Deferred tax assets 14,308 10,570 2, ,017 10,945 2, Non-current liabilities Non-current financial liabilities Other non-current liabilities Non-current provisions Prov. for pensions / other Deferred tax liabilities 6,761 3, ,030 1,269 1,151 6,667 3, ,212 1,192 Total assets 21,790 21,643 Total liabilities and equity 21,790 21,643 Cash position increases due to cash generating nature of the business Ongoing net financial debt reduction 16

17 Solid operating cash flow in Q [ m] Q Q Δ Cash flow drivers Profit after tax D&A Changes in provisions Changes in other assets / liabilities Other operating activities Operating cash flow before changes in WC Changes in working capital Higher profit after tax, prior year included restructuring costs, mainly severances Changes in provisions contains last year's build-up of restructuring provisions Operational cash flow down as prior year benefitted from improvements in working capital Operating cash flow Investing cash flow thereof Capex * Q investing cash flow contains inflow from sale of Geneva headquarters Financing cash flow * Only PPE without intangibles 17

18 Agenda Executive overview Business and financial review Q Guidance

19 Group guidance confirmed despite FX headwinds Merck guidance for 2013 Sales: ~ bn EBITDA pre: ~ bn EPS pre: ~ On track to deliver 19

20 Update of divisional 2013 guidance: Performance Materials now around upper end of previous range Merck Serono Consumer Health Performance Materials Merck Millipore Sales Sales Sales Sales Moderate organic growth Stable Stable Moderate organic growth EBITDA pre EBITDA pre EBITDA pre EBITDA pre ~ bn ~ m ~ m ~ m Merck 2013 guidance: ~ 3.1 to 3.2 billion EBITDA pre 20

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22 Appendix

23 Additional financial guidance Further financial details Royalty, license and commission income in 2014 Corporate EBITDA pre Underlying tax ratio Capex on PPE Hedging / USD assumption To decline to: ~ m ~ -210 m ~25% to 26% ~ 450 m 2013 and 2014 hedge ratio between ~35% to 40% at EUR/USD ~1.30 to

24 Merck Serono and Performance Materials fuel EBITDA pre improvement H1 yoy sales Organic Currency Portfolio Total Merck Serono 3% -2% 0% 1% Consumer Health 4% -3% 0% 1% Performance Materials 8% -3% 0% 5% Merck Millipore 5% -3% 1% 3% Merck Group 4% -3% 0% 2% H1 yoy EBITDA pre contributors [ m] 1, ,627 Sales increase as organic growth overcompensates currency headwinds in all four divisions Performance Materials and Merck Millipore contribute most to absolute and relative sales increase EBITDA pre increases on cost structure improvements, product mix and hedging Merck Millipore stable on higher costs in Process Solutions and currency headwinds EBITDA pre H Merck Serono Consumer Health Performance Materials Merck Millipore Corporate & Other EBITDA pre H

25 Sales growth in Q1 and profitability increase in Q2 makes a solid H [ m] H H Δ H Sales EBITDA pre Margin (% of sales) EPS pre [ ] 5,404 1, % ,307 1, % % 15% 22% Top-line up due to healthy organic growth being burdened by FX EBITDA pre and margin increase on operational performance and savings implementation Operating cash flow [ m] 958 Jun 30, ,166 Dec 31, % Δ 2012 operating cash flow driven by exceptional working capital improvement Net financial debt Working capital 1,316 2,418 1,926 2,360-32% 2% Cash generating nature of portfolio drives net debt reduction Employees 38,122 38,847-2% H1 2013: ~ 200 m EBITDA pre increase 25

26 Strong improvement in reported figures [ m] H H Δ Reported results EBIT Financial result Profit before tax Income tax Tax ratio (%) % % >100% 21% >100% >-100% Prior year EBIT burdened by ~ 390 m efficiency program onetime items Financial result benefitting from gross debt reduction H income tax ratio reflects ~ 425 m one-time items Reported EPS increases on higher EBIT and lower one-time items Net income >100% EPS ( ) >100% 26

27 Merck Serono: Good organic growth and stringent savings execution lead to profitability increase [ m] H H Comments Sales XXX Marketing and selling Admin R&D EBIT EBITDA EBITDA pre Margin (% of sales) Sales bridge 2, % 2, /% Sales slightly up as organic growth driven by Emerging Markets outpaces adverse currency effects Rebif performance supported by U.S. pricing, mitigated by softer volumes Slight growth in Erbitux with some momentum in Emerging Markets and strong support by head and neck launch in Japan Research and development costs under control Sound operations, savings as well as positive mix effects drive strong profitability increase H share of group sales XXX 2,964 m 3% -2% 0% 2,985 m XXX % % Merck Serono H Organic Currency Portfolio H

28 Merck Serono organic growth by product Q organic sales growth [%] by key products [ m] H organic sales growth [%] by key products [ m] XXX XXX % % % % % % % % % % % % Q Q H H

29 Rebif U.S. pricing yields organic growth Trend North America Q2 drivers Price Volume Trend Europe Q2 drivers Price increase - Regional sales evolution [ m] Price increase Price increase Q Q Q Q Q Q Q Q Q Q FX Price Volume Global sales of 499 m in Q posting 4% organic growth North America benefits from pricing increases in February this year and Q2 and Q4 last year U.S. pricing overcompensates volume decreases due to wholesaler inventory reductions and a more competitive environment Flat organic sales in Europe as competition slightly weighs on volumes and pricing continues to be muted Rebif performance 29

30 Erbitux A stable quarter, impacted by FX Erbitux sales by geography Erbitux performance [ m] % Q2 yoy organic growth +1% -4% Global sales of 215 m posting a flat organic growth Strong Japanese organic growth linked to head and neck indication offset by negative FX Moderate growth in Europe despite tougher market environment In Emerging Markets, Turkey s solid contribution was offset by somewhat softer sales in China 0 Q Q Q Q Q Japan & Others* Emerging Markets Europe +7% * Australia/Oceania, Africa 30

31 CMC and GM continue to expand in Emerging Markets while Fertility and Endocrinology remain flat Fertility [ m] Endocrinology [ m] Sales evolution Q Q Q Q Q Q Q Q Q Q Cardio Metabolic Care (CMC) & General Medicine (GM) [ m] Q Q Q Q Q Q2 drivers Organic Q2 drivers Organic Q2 drivers Organic Q2 drivers Lower U.S. and European volumes impact Gonal-F, in line with a modest Fertility market (economic situation), while other Fertility products grow Endocrinology flat organically; good performance of Serostim and Kuvan offset by organic sales decline of Saizen in the U.S. and Europe Concor and Thyroids with strong Q2 performance completely offset Glucophage decline Emerging Markets defend good volumes in Fertility and Cardio Metabolic Care & General Medicine 31

32 Merck Serono pipeline Phase I Phase II Phase III In registration ATX-MS-1467 Immune tolerizing agent Multiple sclerosis Plovamer acetate (PI 2301) Second-generation peptide copolymer Multiple sclerosis Novel combination of pimasertib with PI3K inhibitor 1 Solid tumors C-Met kinase inhibitor Solid tumors TH Hypoxia-targeted drug Hematologic malignancies and solid tumors Sym004 - Anti-EGFR mabs Solid tumors Anti-PD-L1 ( MSB C) Programmed cell death ligand mab Solid tumors NHS-IL2 - Cancer immunotherapy, targeting IL-2 to the necrotic regions of tumors Solid tumors NHS-IL Cancer immunotherapy targeting IL-12 to the necrotic region of tumors Solid tumors Sprifermin - Fibroblast Growth Factor 18 - Osteoarthritis ONO 4641 Oral S1P receptor modulator Multiple sclerosis DI17E6 Anti-integrin mab Metastatic colorectal cancer DI17E6 Anti-integrin mab Metastatic castration-resistant prostate cancer Pimasertib MEK inhibitor 1 Pancreatic cancer Pimasertib MEK inhibitor 1 Malignant melanoma Sym004 Anti-EGFR mabs Squamous cell carcinoma of the head and neck Sprifermin Fibroblast Growth Factor 18 Cartilage injury repair Atacicept anti-blys/anti-april fusion protein Systemic lupus erythematosus TH-302 Hypoxia-targeted drug Soft tissue sarcoma TH-302 Hypoxia-targeted drug Pancreatic cancer Tecemotide (L-BLP25) 4 MUC1 antigen-specific cancer immunotherapy Non-small cell lung cancer Kuvan (Sapropterin dihydrochloride) PKU in pediatric patients < 4years 3 Neurodegenerative Diseases Immunology Immuno-Oncology Erbitux (cetuximab) Anti-EGFR mab Squamous cell carcinoma of the head and neck (China) Oncology Endocrinology Pipeline as of June, 2013; 1 Combined with PI3K/mTOR inhibitor of Sanofi (SAR245409), conducted under the responsibility of Merck 2 Sponsored by the National Cancer Institute (NCI), USA; 3 Phase IIIb post-approval request by EMA; 4 START trial did not meet primary endpoint. INSPIRE study ongoing 32

33 Merck Serono pipeline newsflow Project Indication Current phase Timing Event ONO-4641 Multiple sclerosis Phase II H Phase III go/no-go decision Tecemotide * Non-Small Cell Lung cancer Phase III H Atacicept Systemic lupus erythematosus Phase II H Decision about continuation of development program Decision about continuation of development program * formerly L-BLP25/Stimuvax 33

34 Consumer Health: Successfully managing the turnaround [ m] H H Sales XXX Marketing and selling Admin R&D -8-9 EBIT EBITDA EBITDA pre Margin (% of sales) 14.5% 12.2% Sales bridge Comments Higher sales on organic increase mitigated by adverse currency effects Healthy demand for cough and cold products due to extended winter period in Europe as well as strong performance of vitamins Business continues to improve on Fit for 2018 initiative Profitability increases due to business performance, improved resource allocation and ongoing cost containment H share of group sales XXX 229 m 4% -3% 0% 232 m XXX 15.3% Consumer 4% Health H Organic Currency Portfolio H

35 Performance Materials: Strong demand for liquid crystals and solid Pigments drive H1 [ m] H H Sales XXX Marketing and selling Admin R&D EBIT EBITDA EBITDA pre Margin (% of sales) 48.8% 43.8% Sales bridge Comments Momentum in Liquid Crystals fuels organic sales growth somewhat mitigated by price declines and currency headwinds Trend to large premium TVs and tablets drives shift to flagship technologies PS-VA and IPS Pigments contributing with two solid volume quarters meeting an improved cost structure R&D increases slightly on investments into future technologies Demand for PS-VA, good capacity utilization and improved cost structure drive record profitability H share of group sales XXX 8% -3% 813 m 0% 852 m XXX 16% Performance Materials H Organic Currency Portfolio H

36 Merck Millipore: Healthy organic performance amid U.S. healthcare constraints and FX burden [ m] H H Sales XXX 1,335 1,302 Marketing and selling Admin R&D EBIT EBITDA EBITDA pre Margin (% of sales) 23.8% 24.5% Sales bridge Comments Organic sales growth driven by volume and price, mitigated by currency headwinds, mainly from the Japanese Yen Biopharma production demand in Process Solutions a key growth driver Lab Solutions growing organically in all business fields, benefitting from pharma growth and good performance in Europe U.S. sequestration keeps weighing on Bioscience leading to softer performance Margin declines slightly on higher marketing/selling and R&D investments, paired with tighter market conditions and FX H share of group sales XXX 1,302 m 5% -3% 1% 1,335 m XXX Merck 25% Millipore H Organic Currency Portfolio H

37 Solid operating cash flow in H [ m] H H Δ Cash flow drivers Profit after tax D&A Changes in provisions Changes in other assets / liabilities Other operating activities Higher profit after tax, prior year included restructuring, mainly severances Changes in provisions contains last year's build-up for restructuring Changes in other assets and liabilities down due to lower tax payments Operating cash flow before changes in WC Changes in working capital Operating cash flow Investing cash flow thereof Capex * Financing cash flow Good operative cash flow due to operational performance and savings, H contains 317 m restructuring provisions Investing cash flow contains short term investments for bond repayment in Q3 Previous year s financing cash flow contains mainly bond repayment 37

38 Deviation Impact Deviation Impact Deviation Impact 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 US $ 0.01 U.S. Dollar increase versus Euro Group Sales: decrease by ~ 15 m Group EBITDA: decrease by ~ 7 m invoices, receivables and liabilities, are hedged 100% Exposure from planned revenues hedged up to three years on a rolling CH 0.01 Swiss Franc increase versus Euro Group Sales: negligible Group EBITDA: increase by ~ 4 m basis Instruments are forward contracts affecting EBITDA pre of Corporate / Other and options affecting financial result JPN 1 Japanese Yen increase versus Euro Group Sales: decrease by ~ 4 m Group EBITDA: decrease by ~ 2 m * approximate numbers 38

39 One-time items in Q One-time items on EBIT [ m] Q Q One-time items thereof D&A One-time items thereof D&A Merck Serono Consumer Health Performance Materials Merck Millipore Corporate & Other Total

40 One-time items in H One-time items on EBIT [ m] H H One-time items thereof D&A One-time items thereof D&A Merck Serono Consumer Health Performance Materials Merck Millipore Corporate & Other Total

41 IR contact detail Constantin Fest Head of Investor Relations / constantin.fest@merckgroup.com Alessandra Heinz Assistant Investor Relations / allesandra.heinz@merckgroup.com Silke Meyer Assistant Investor Relations / silke.meyer@merckgroup.com Dr. Thomas Kornek Equity Holders / thomas.kornek@merckgroup.com Eva Sterzel Communication Tools / eva.sterzel@merckgroup.com - investor.relations@merckgroup.com Web - Fax