1. Q3 Results – Press Conference
Transformation well on track
Karl-Ludwig Kley
Chairman of the Executive Board
Matthias Zachert
Chief Financial Officer
Darmstadt | November 14th, 2013
2. Disclaimer
Remarks
All comparative figures relate to the corresponding last year’s period.
Important information
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as amended (the “Securities Act”), and may not be offered or sold in the United States absent registration under the
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Note regarding forward-looking statements
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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
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3. Agenda
Executive overview – Karl-Ludwig Kley
Business and financial review Q3 2013 – Matthias Zachert
Update on transformational journey – Karl-Ludwig Kley
4. 9M 2013 – Transformation well on track
Sales [€ m]
EBITDA pre [€ m]
Net income [€ m]
0%
+13%
+>100%
+4% organic
8,029
8,064
2,458
922
2,175
295
9M 2012
9M 2013
9M 2012
9M 2013
9M 2012
9M 2013
4
5. Q3 2013 – Solid quarter amid a challenging
environment
Merck Serono shows strong organic sales growth of 5% driven by EM* and Japan
Consumer Health turnaround on track underlined by strong Q3 performance
Operations
Performance Materials solid, first signs of destocking
Merck Millipore outperforms due to strength of balanced portfolio
Accelerated implementation of efficiency measures
Solid organic sales growth, total sales slightly decreasing due to FX effects
Continuingly increasing EBITDA pre despite major FX headwinds
Financials
EPS and Net Income increase more than 80%
Net financial debt reduction continued
Merck’s solid business performance of the first half continued in the third quarter of 2013
*Emerging
Markets
5
6. Operational update – Merck Serono and
Consumer Health
Erbitux shows strong organic growth
Update
Merck
Serono
Good performance of Rebif despite challenging markets
Continuation of Tecemotide development program
Further partnering with Ablynx (Nanobodies)
and Selvita (cancer lead discovery)
Focus on core strategic brands yields growth
Update
Consumer
Health
Better resource allocation improves profitability
Turnaround fully on track
6
7. Operational update – Performance Materials and
Merck Millipore
Update
Performance
Materials
Update
Merck
Millipore
Continuation of long term growth trend of Liquid Crystals
driven by demand for larger TVs
Technology improvements support leadership position
Turnaround of pigments fully on track
Balanced portfolio of three business units performs well
amid visible economic headwinds
Healthy demand for Merck’s premium products results in
organic growth for all business units
Continued excellent performance
7
8. 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%
2,722
Europe
North America
2,659
Europe
956
0%
North America
562
Emerging
Markets
20%
Organic
sales
growth
959
+1%
-7%
525
-1%
964
+1%
971
+11%
240
-15%
204
+6%
36%
37%
Emerging Markets
8%
Japan & Others*
Japan & Others*
Q3 2012
Q3 2013
First time Emerging Markets share exceeds Europe
*Australia/Oceania,
Africa
8
9. Agenda
Executive overview – Karl-Ludwig Kley
Business and financial review Q3 2013 – Matthias Zachert
Update on transformational journey – Karl-Ludwig Kley
10. Q3 2013 – Strong margin and profitability expansion
amid significant FX headwinds
[€ m]
Δ
Q3 2013
Q3 2012
2,659
2,722
-2%
831
754
10%
31.2%
27.7%
EPS pre [€]
2.29
1.98
16%
Operating cash flow
827
908
-9%
Sales
EBITDA pre
Margin (% of sales)
[€ m]
Sept 30, 2013
Net financial debt
Working capital
Employees
Dec 31, 2012
Δ
536
1,926
-72%
2,290
2,360
-3%
37,976
38,847
-2%
Q3 2013 dynamics
Sales decline slightly as solid
organic growth of 5% is being
more than offset by FX
EBITDA pre increase driven by
cost control and gains from
proactive hedging approach
Strong operating cash flow despite
restructuring cash-outs of ~€45 m;
previous year driven by exceptional
improvements in working capital
management
Cash generating nature of portfolio
drives net debt reduction
Over ~€1.4 bn net financial debt reduction in nine months
10
11. EBITDA pre improves while currency headwinds hurt
Q3 yoy sales
Organic
Currency
Portfolio
Total
Merck Serono
5%
-7%
0%
-2%
Consumer Health
15%
-8%
0%
7%
Performance Materials
-2%
-7%
0%
-9%
Merck Millipore
6%
-7%
1%
-1%
Merck Group
5%
-7%
0%
-2%
Q3 yoy EBITDA pre contributors [€ m]
754
36
5
0
5
31
831
Merck Serono and Merck Millipore
strongest absolute contributors to
organic growth
All divisions continue to experience
significant currency headwinds,
stemming mainly from the
U.S. dollar and the Japanese yen
Cost efficiencies and resource
allocation in marketing and selling
fuel Merck Serono improvement
Corporate & Other reflects
hedging gains and cost efficiencies
EBITDA pre
Q3 2012
Merck
Serono
Consumer
Health
Performance
Materials
Merck
Millipore
Corporate &
Other
EBITDA pre
Q3 2013
11
12. Reported earnings strong, driven by operational and
financial improvements
Δ
[€ m]
Q3 2013
Q3 2012
EBIT
482
318
51%
Financial result
-52
-58
11%
Profit before tax
430
260
65%
Income tax
-87
-71
-23%
Reported results
EBIT increases due to good
business performance and lower
one-time costs
Strong debt deleveraging drives
financial result improvement
Lower tax rate, due to one-time
tax benefits
Increase of reported EPS reflects
operational and financial
improvements
Tax ratio (%)
20%
27%
Net income
340
185
83%
EPS (€)
1.56
0.85
84%
12
13. Merck Serono – Good organic growth combined with
strong margin improvement
[€ m]
Q3 2013
Q3 2012
1,483
1,511
-301
-339
-51
-59
R&D
-297
-287
Branded mature products outperforming in Emerging Markets
EBIT
274
152
Cost savings accelerated especially in marketing and selling
EBITDA
480
383
EBITDA pre
501
466
Slight R&D increase due to investments in life-cycle management
and increase in early stage projects
33.8%
30.8%
Sales
XXX
Marketing and selling
Admin
Margin (% of sales)
Comments
Solid organic sales growth of 5% driven by Emerging Markets and
Japan; FX overshadows underlying growth
Rebif - U.S. volume decline as guided
Strong Erbitux performance driven by Emerging Markets & Japan
Solid profitability improvement despite significant FX headwinds
and loss of Avonex royalty income of ~€30 m in Q3
Sales bridge
€1,511 m
XXX
5%
-7%
Q3 2013 share of group sales
0%
€1,483 m
XXX
Merck Serono
56%
Q3 2012
Organic
Currency
Portfolio
Q3 2013
13
14. Consumer Health – Turnaround fully on track
[€ m]
Q3 2013
Q3 2012
XXX
Sales
131
122
Marketing and selling
-55
-53
Admin
-4
-5
R&D
-4
-5
EBIT
21
8
EBITDA
23
11
EBITDA pre
24
19
18.4%
15.7%
Margin (% of sales)
Comments
High organic sales growth driven by Germany, France & Emerging
Markets as well as a soft comparable base, mitigated by FX
Strategic brands (Kytta, Bion 3, Nasivin) show strong growth due
to improved resource allocation and tightly managed expenses
Restructuring efforts of product pruning and market exits continue
to improve the business model
Profitability improvement driven by sales growth while costs are
kept under control
Sales bridge
XXX €122 m
15%
-8%
Q3 2013 share of group sales
0%
€131 m
XXX
5%
Q3 2012
Organic
Currency
Portfolio
Consumer
Health
Q3 2013
14
15. Performance Materials – Liquid crystal mix and
leaner Pigments & Cosmetics drive margin expansion
[€ m]
Q3 2013
Q3 2012
XXX
Sales
406
446
Sales down due to strong FX and moderate inventory destocking
Marketing and selling
-35
-38
-7
-9
Healthy demand for continuously improved flagship technologies
PS-VA and IPS support volumes and profitability
R&D
-37
-35
EBIT
177
164
EBITDA
202
194
EBITDA pre
197
197
EBITDA pre stable due to favorable mix in liquid crystals and
improved Pigments cost structure offsetting FX headwinds
48.4%
44.2%
Inventory destocking expected to become more visible in Q4
Admin
Margin (% of sales)
Comments
Market shares kept at high levels due to product innovation and
trend to larger displays
Faster implementation of Pigments efficiency measures, leading to
visible improvement of profitability versus previous years
Sales bridge
XXX
€446 m
-2%
-7%
Q3 2013 share of group sales
0%
€406 m
XXX
15%
Q3 2012
Organic
Currency
Portfolio
Performance
Materials
Q3 2013
15
16. Merck Millipore – Resilient portfolio delivers solid
sales and profitability despite difficult environment
[€ m]
Q3 2013
Q3 2012
639
643
-171
-166
Admin
-25
-26
R&D
-40
-43
EBIT
67
68
EBITDA
145
145
EBITDA pre
157
152
24.6%
23.7%
Sales
XXX
Marketing and selling
Margin (% of sales)
Comments
Volume and price increases in Process and Lab Solutions
compensate for U.S. sequestration pressure in Bioscience (-8%*)
Solid organic performance and portfolio effects are offset by FX
headwinds (Japanese yen and U.S. dollar)
All business units with double-digit organic growth in Emerging
Markets and ongoing solid performance in Europe
Continued biopharma demand drives volume and price increases
in Process Solutions
Despite difficult economic environment business proves resilient
maintaining high profit and cash contribution
Sales bridge
XXX €643 m
6%
-7%
Q3 2013 share of group sales
1%
€639 m
XXX
24%
Q3 2012
Organic
Currency
Portfolio
Merck
Millipore
Q3 2013
*reported
16
17. 9M 2013 – Jump in profitability fuelled by Merck
restructuring
[€ m]
Δ
9M 2013
9M 2012
Sales
8,064
8,029
0%
EBITDA pre
2,458
2,175
13%
30.5%
27.1%
6,66
5.56
20%
1,785
2,074
-14%
Margin (% of sales)
EPS pre [€]
Operating cash flow
[€ m]
Sept 30, 2013
Net financial debt
Δ
536
1,926
-72%
2,290
2,360
-3%
37,976
Working capital
Employees
Dec 31, 2012
38,847
9M 2013
Good organic sales growth of 4%
is being offset by FX leading to
stable top line development
340 bps EBITDA pre margin uplift
reflects strong restructuring
execution
2012 operating cash flow driven by
exceptional working capital
improvement
-2%
Continuous net financial debt
reduction reflecting strong cashgenerating nature of business
EBITDA and margin upgraded to a new level
17
18. 9M 2013 – Record Net Income and EPS levels
Δ
[€ m]
9M 2013
9M 2012
EBIT
1,347
652
>100%
-159
-194
18%
1,188
458
>100%
Income tax
-260
-155
-68%
Tax ratio (%)
22%
34%
Net income
922
295
>100%
EPS (€)
4.24
1.36
Reported results
>100%
Financial result
Profit before tax
EBIT doubles due to strong 2013
performance, prior year burdened
by one-time items
Ongoing deleveraging process
and €500 m December 2012 bond
repayment improve financial result
9M 2012 income tax ratio reflects
~€530 m one-time items
Record EPS level stemming from
strong financial and operational
performance
18
19. 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
growth
Moderate organic
growth
Stable
Moderate organic
growth
EBITDA pre
EBITDA pre
EBITDA pre
EBITDA pre
~ €1.9 – 2.0 bn
~ €73 - 77 m
~ €750 - 770 m
~ €620 – 640 m
Merck 2013 guidance: ~ €3.2 – 3.25 billion EBITDA pre
19
20. Agenda
Executive overview – Karl-Ludwig Kley
Business and financial review Q3 2013 – Matthias Zachert
Update on transformational journey – Karl-Ludwig Kley
22. Focus on business initiatives and organic growth
Continued growth in Emerging Markets through strong
platforms in all divisions
Operational
perspective
Development of new consumer brands in over-thecounter business
Foster performance culture and a continuous
improvement process
Presence in innovative technologies: immunology,
oncology and disposables in life-science-tools
Innovation
perspective
Strong position in OLED vapor and printing
technologies; ready to capture future opportunities
Strengthen our leadership position through ongoing
focused investments in R&D across the Merck portfolio
22
23. Aspirations 2018 – Merck will be…
known for
liked for
respected for
Innovation
Customer orientation
Values
Quality
Entrepreneurial spirit
Responsibility and
Sustainability
Performance and
Efficiency
Career opportunities
Thinking beyond
generations
23