Q2 2023: Demonstrating Resilience under Market Pressure
02 Aug 2023
Financial Statement
Financial results of Q2 2023
Net sales decrease organically by −1.1% to € 5.3 billion
EBITDA pre down organically by −7.0% to € 1.6 billion
Healthcare business sector increases net sales and earnings
Weaker market environment in Life Science and Electronics
Negative foreign exchange impact stronger than in Q1 2023
Updated forecast for fiscal 2023
Net sales: Organic development between −2% and +2 %
Net sales excluding Covid-19 business: Organic growth of +1% to +5%
EBITDA pre: Organic decline of −9% to −3%
Foreign exchange impact on both net sales and EBITDA pre: −6% to −3%
Darmstadt, Germany, August 3, 2023 – In the second quarter of 2023, Merck KGaA, Darmstadt, Germany, leveraged its diversified portfolio with three business sectors to navigate a challenging market environment. While net sales of Life Science and Electronics declined in softer markets, Healthcare delivered organic sales growth of 11.9%.
Overall, Group net sales decreased by −4.8% to € 5,302 million compared to the same quarter of the previous year. The strong growth of the Healthcare business sector largely offset the decline in Life Science and Electronics, resulting in an organic development of Group sales of −1.1%. Despite the strong earnings growth of Healthcare, Group EBITDA pre declined by −12.8% (organically −7.0%) to € 1,553 million. This was caused primarily by decreased sales volumes and the proportionately lower share of higher-margin products. Negative foreign exchange effects put further pressure on both net sales and EBITDA pre.
Against this backdrop, the company is updating its forecast for fiscal 2023. The company now expects an organic development of Group net sales of between −2% and +2% (previously +1% to +4%) along with an organic decline in EBITDA pre by −9% to −3% (previously: −5% to 0%). Excluding the Covid-19 business, Group sales are expected to grow organically by +1% to +5% (previously: +4% to +7%). Both net sales and EBITDA pre are likely to be impacted by negative foreign exchange effects of −6% to −3% (previously: −5% to −2%).
“For us, 2023 remains a transition year,” said Belén Garijo, Chair of the Executive Board and CEO of Merck KGaA, Darmstadt, Germany. “In the second quarter, our Healthcare business once again proved to be a growth driver. We are building on the strengths of our diversified business model. We remain confident of our mid-term growth ambition and in delivering € 25 billion in sales by 2025.”
Headwinds from foreign exchange effects pick up in Q2 2023
Sales in the second quarter of 2023 decreased organically by −1.1%. Foreign exchange effects, especially from the U.S. dollar and the Chinese renminbi, had an adverse impact of −3.7% on sales. By contrast, in the first quarter of 2023, foreign exchange effects still contributed positively to sales growth by 0.8%.
EBITDA pre declined organically by −7.0% in the second quarter of 2023. The impact of foreign exchange on Group EBITDA pre was −5.7%. The EBITDA pre margin was 29.3%. Earnings per share pre were € 2.20.
Weaker market environment in Life Science and Electronics weighs on business performance in the first half of 2023
In the first half of 2023, the Group generated net sales of € 10,595 million, reflecting a decline of −1.6% (organic: −0.2%) compared to the same period of the previous year. While net sales of the Healthcare business sector grew organically by 8.8% in the first six months of 2023, Life Science (−4.2%) and Electronics (−6.7%) reported organic sales decreases. The main reasons were the significant decline in Covid-19-related demand and the weaker market environment in both Semiconductor Solutions and Display Solutions. Organically, Group EBITDA pre decreased by −4.5% to € 3,140 million in the first half of 2023. Earnings per share pre were € 4.57.
Life Science: Significant decrease in Covid-19-related demand drives organic decline in net sales and earnings
In the second quarter of 2023, the Life Science business sector reported net sales of € 2,354 million, a decrease of −11.1% compared with the same quarter of the previous year. Organically, sales declined by −8.7%. Foreign exchange effects had a negative impact of −2.4% on sales.
The Process Solutions and Life Science Services business units recorded organic sales declines of −11.8% and −30.5%, respectively. The main reasons were the significantly lower Covid-19-related demand and a considerable slow-down in the core business of Process Solutions due to destocking by key customers.
Organically, EBITDA pre of Life Science decreased by −26.1% to € 712 million. Lower sales volumes were a significant factor for this decline, as was the comparatively lower share of higher-margin products in sales, partly driven by lower Covid-19-related sales. Foreign exchange had a negative impact of −3.3% on earnings. The EBITDA pre margin of Life Science was 30.2%.
Healthcare: New products remain growth drivers, complemented by the positive development of the established product portfolio
In the second quarter of 2023, the Healthcare business sector increased net sales by 6.5% (organically: 11.9%) to € 2,049 million, amid a negative foreign exchange impact of −5.4%. The key growth drivers were the new launches, namely of the immuno-oncology drug Bavencio, which grew organically by 26.8%, as well as Mavenclad for the treatment of relapsing multiple sclerosis, which generated organic growth of 28.1%.
The established product portfolio also contributed positively to sales growth. Organically, net sales of the oncology drug Erbitux increased by 10.2% in the second quarter of 2023. The Fertility franchise generated organic sales growth of 24.7% compared with the same quarter of the previous year. Ongoing supply difficulties of a competitor had a favorable impact on net sales of the fertility products. In addition, the market for fertility treatments in China continued its recovery after the Covid-19-related lockdowns ended.
In the second quarter of 2023, EBITDA pre of the Healthcare business sector amounted to € 704 million. Organic earnings growth of 30.4% was partly offset by negative foreign exchange effects of −13.9%. The EBITDA pre margin of Healthcare was 34.3%.
Electronics: Second quarter impacted by weaker market environment in Semiconductor Solutions and Display Solutions
The Electronics business sector recorded a −9.7% decline in net sales to € 899 million in the second quarter of 2023. Organically, sales decreased by −6.3% amid a foreign exchange effect of −3.8%.
The Semiconductor Solutions business unit reported an organic sales decline of −4.7%. The robust project business in Delivery Systems & Services (DS&S) largely offset the decline in Semiconductor Materials in what was, as expected, a weaker market. A recovery in the Semiconductor Materials business is delayed further. Market consensus now assumes a stabilization in the second half of the year at a continued low level. Continued weak pricing and the comparatively lower share of higher-margin products in liquid crystals were the main reasons for the organic sales decline of −10.9% in the Display Solutions business unit.
EBITDA pre of Electronics declined organically by −5.2% to € 262 million. Foreign exchange had a negative impact on EBITDA pre of −4.9%. The EBITDA pre margin was 29.1%.
Updated forecast for fiscal 2023
Merck KGaA, Darmstadt, Germany, is updating its forecast for fiscal 2023. The reasons for this are, in particular, the persistently high inventory levels of our Life Science customers, the further delayed recovery of the market for semiconductor materials, an increased cost level due to inflation and an even stronger negative foreign exchange impact. The company once again confirms its mid-term objective of delivering sales of € 25 billion by 2025. For fiscal 2023, the forecast for the Group is as follows:
Organic sales development: −2% to +2%, totaling € 20.5 billion to € 21.9 billion
Organic sales growth excluding Covid-19 business: +1% to +5%
Organic decline of EBITDA pre: −9% to −3%, totaling € 5.8 billion to € 6.4 billion
Negative foreign exchange effects on sales and EBITDA pre: −6% to −3%
EPS pre: € 8.25 to € 9.35, based on an underlying tax rate of 22 %.
Overview of the key figures for Q2 2023
Group
Key figures
€ million
Q2 2023
Q2 2022
Change
Jan.-June 2023
Jan.-June 2022
Change
Net sales
5,302
5,568
-4.8%
10,595
10,766
-1.6%
Operating result (EBIT)1
969
1,177
-17.6%
2,004
2,350
-14.7%
Margin (% of net sales)1
18.3%
21.1%
18.9%
21.8%
EBITDA2
1,452
1,709
-15.1%
2,942
3,312
-11.2%
Margin (% of net sales)1
27.4%
30.7%
27.8%
30.8%
EBITDA pre1
1,553
1,782
-12.8%
3,140
3,411
-7.9%
Margin (% of net sales)1
29.3%
32.0%
29.6%
31.7%
Profit after tax
706
870
-18.9%
1,506
1,754
-14.1%
Earnings per share (€)
1.62
1.99
-18.6%
3.45
4.02
-14.2%
Earnings per share pre (€)1
2.20
2.64
-16.7%
4.57
5.05
-9.5%
Operating cash flow
622
852
-27.0%
1,475
1,692
-12.8%
Net financial debt3
9,355
8,328
12.3%
–
–
-
Number of employees4
63,701
62,759
1.5%
–
–
-
1 Not defined by International Financial Reporting Standards (IFRS).
2 Not defined by International Financial Reporting Standards (IFRS); EBITDA corresponds to operating result (EBIT) adjusted by depreciation,
amortization, impairment losses, and reversals of impairment losses.
3 Figures for the reporting period ending on June 30, 2023, prior-year figures as of December 31, 2022.
4 Figures for the reporting period ending on June 30, 2023, prior-year figures as of June 30, 2022. Prior-year figures have been adjusted. This figure refers to all employees at sites of fully consolidated entities.
Net sales by business unit
€ million
Q2 2023
Share
Organic growth1
Exchange rate effects
Acquisitions/ divestments
Total change
Q2 20222
Share
Science & Lab Solutions
1,182
50%
-1.1%
-2.9%
–
-4.1%
1,232
46%
Process Solutions
994
42%
-11.8%
-2.1%
–
-13.9%
1,154
44%
178
8%
-30.5%
-1.4%
–
-31.9%
262
10%
2,354
100%
-8.7%
-2.4%
–
-11.1%
2,648
100%
1 Not defined by International Financial Reporting Standards (IFRS).
2 Prior-year figures have been adjusted owing to an internal realignment.
Healthcare
Net sales by major product lines/products
€ million
Q2 2023
Share
Organic
growth1
Exchange rate effects
Total change
Q2 2022
Share
Oncology
458
22%
17.8%
-7.7%
10.1%
415
22%
thereof: Erbitux®
260
13%
10.2%
-9.2%
1.1%
258
13%
thereof: Bavencio®
178
9%
26.8%
-5.0%
21.8%
146
8%
Neurology & Immunology
467
23%
12.2%
-3.4%
8.8%
429
22%
thereof: Rebif®
205
10%
-3.2%
-2.4%
-5.6%
217
11%
thereof: Mavenclad®
262
13%
28.1%
-4.5%
23.6%
212
11%
Fertility
409
20%
24.7%
-8.1%
16.5%
351
18%
thereof: Gonal-f®
219
11%
18.7%
-8.6%
10.1%
198
10%
Cardiovascular, Metabolism and Endocrinology
665
32%
0.9%
-4.6%
-3.7%
690
36%
thereof: Glucophage®
197
10%
-8.9%
-4.6%
-13.6%
228
12%
thereof: Concor®
142
7%
1.8%
-5.7%
-3.9%
147
8%
thereof: Euthyrox®
131
6%
-2.3%
-3.4%
-5.8%
139
7%
thereof: Saizen®
79
4%
22.1%
-5.9%
16.2%
68
4%
Other
50
3%
38
2%
Healthcare
2,049
100%
11.9%
-5.4%
6.5%
1,924
100%
1 Not defined by International Financial Reporting Standards (IFRS).
Electronics
Net sales by business unit
€ million
Q2 2023
Share
Organic growth1
Exchange rate effects
Acquisitions/ divestments
Total change
Q2 2022
Share
Semiconductor Solutions
602
67%
-4.7%
-3.6%
0.5%
-7.8%
653
66%
Display Solutions
196
22%
-10.9%
-4.9%
–
-15.8%
233
23%
Surface Solutions
101
11%
-5.8%
-2.8%
–
-8.7%
111
11%
Electronics
899
100%
-6.3%
-3.8%
0.3%
-9.7%
996
100%
1 Not defined by International Financial Reporting Standards (IFRS).
Notes to editors:
The press conference for media representatives will take place at 9:30 a.m. (CEST).
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Stock symbols
Reuters: MRCG, Bloomberg: MRK GY, Dow Jones: MRK.DE
Frankfurt Stock Exchange: ISIN: DE 000 659 9905 – WKN: 659 990
All Merck KGaA, Darmstadt, Germany, press releases are distributed by e-mail at the same time they become available on the EMD Group website. In case you are a resident of the USA or Canada, please go to www.emdgroup.com/subscribe to register for your online, change your selection or discontinue this service.
About Merck KGaA, Darmstadt, Germany
Merck KGaA, Darmstadt, Germany, a leading science and technology company, operates across life science, healthcare and electronics. More than 64,000 employees work to make a positive difference to millions of people’s lives every day by creating more joyful and sustainable ways to live. From providing products and services that accelerate drug development and manufacturing as well as discovering unique ways to treat the most challenging diseases to enabling the intelligence of devices – the company is everywhere. In 2022, Merck KGaA, Darmstadt, Germany, generated sales of € 22.2 billion in 66 countries.
The company holds the global rights to the name and trademark “Merck” internationally. The only exceptions are the United States and Canada, where the business sectors of Merck KGaA, Darmstadt, Germany, operate as MilliporeSigma in life science, EMD Serono in healthcare and EMD Electronics in electronics. Since its founding in 1668, scientific exploration and responsible entrepreneurship have been key to the company’s technological and scientific advances. To this day, the founding family remains the majority owner of the publicly listed company
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