Life Science

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­Life ­Science

Key figure

Change
€ million 2017 2016 € million in %
Net sales 5,882 5,658 224 4.0%
Operating result (EBIT)1 834 556 277 49.8%
Margin (% of net sales)1 14.2% 9.8%
EBITDA1 1,580 1,378 202 14.6%
Margin (% of net sales)1 26.9% 24.4%
EBITDA pre1 1,786 1,652 134 8.1%
Margin (% of net sales)1 30.4% 29.2%
Business free cash flow1 1,402 1,144 258 22.5%
1
Not defined by International Financial Reporting Standards (IFRS).

Development of net sales and results of ­operations

In 2017, Life Science posted organic sales growth of 5.3%, partially offset by negative foreign exchange effects of – 1.7%. The acquisition of BioControl Systems in December 2016 contributed 0.4% to net sales. Including these effects, net sales rose overall by 4.0% to € 5,882 million (2016: € 5,658 million). All three business units ­contributed favorably to the organic sales growth of our Life Science business sector in 2017. Process Solutions generated organic sales growth of 8.0% attributable to high demand across the portfolio and was thus again the main driver of growth in Life Science in 2017. Applied Solutions continued to perform well, posting organic growth of 4.7%. The Research Solutions business unit reported an organic sales increase of 3.0%.

The development of sales in the individual quarters in comparison with 2016 as well as the respective organic growth rates are presented in the following graph:

­LIFE SCIENCE

Net sales and organic growth1 by quarter2

€ million/organic growth in %

1 Not defined by International Financial Reporting Standards (IFRS).
2 Quarterly breakdown unaudited.

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Net sales by region – 2017

€ million/% of net sales of the business sector

From a geographic perspective, all regions contributed positively to the organic sales growth of Life Science.

North America remained the largest region for our Life Science business sector, accounting for 35% (2016: 36%) of net sales. It posted organic sales growth of 4.5%, driven by a 6.7% increase in Process Solutions. Research Solutions and Applied Solutions also demonstrated positive growth dynamics with 2.7% and 3.4% growth, respectively. In 2017, Research Solutions benefited from improved customer demand and initial sales synergies from the Sigma-Aldrich acquisition as well as from a weak comparative basis in 2016. Applied Solutions continued its positive development, particularly owing to good demand in Analytics and Biomonitoring. Overall, net sales in North America rose to € 2,093 million (2016: € 2,031 million).

Europe, Life Science’s second largest geographic market, generated organic net sales growth of 3.9% in 2017 with positive performance across most of the portfolio. Having already generated strong growth in 2016, Process Solutions and Research Solutions continued to perform well in 2017, generating good organic growth rates of 4.3% and 3.8%, respectively. Overall, sales increased to € 2,022 million (2016: € 1,960 million) equating to a contribution of 34% (2016: 35%) of the business sector’s net sales in 2017.

Within Asia-Pacific, sales grew organically by 8.2% with all businesses contributing favorably. The largest contributor was Process Solutions with 17.6% organic sales growth driven by Upstream & Systems as well as Filtration & Chromatography. Net sales in Asia-­Pacific rose to € 1,395 million (2016: € 1,324 million) representing an overall contribution of 24% (2016: 23%) to the business sector.

In Latin America, Life Science reported organic growth of 6.3%, primarily driven by the double-digit growth in Applied Solutions, especially Lab Water and Biomonitoring. Net sales in the region increased to € 273 million (2016: € 256 million) accounting for 5% of the business sector’s net sales (2016: 4%), a slight increase over 2016.

The Middle East and Africa region posted strong organic sales growth of 8.7%. Net sales in the region grew to € 98 million (2016: € 87 million) representing 2% (2016: 2%) of Life Science net sales in 2017.

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Life ­Science

Net sales components by region – 2017

€ million/change in % Net sales Organic growth1 Exchange rate effects Acquisitions/ divestments Total change
Europe 2,022 3.9% – 1.0% 0.3% 3.2%
North America 2,093 4.5% – 2.5% 1.0% 3.0%
Asia-Pacific (APAC) 1,395 8.2% – 2.3% – 0.5% 5.4%
Latin America 273 6.3% – 0.7% 1.2% 6.8%
Middle East and Africa (MEA) 98 8.7% 3.2% 0.4% 12.3%
Life Science 5,882 5.3% – 1.7% 0.4% 4.0%
1
Not defined by International Financial Reporting Standards (IFRS).

The Process Solutions business unit, which markets products and services for the entire pharmaceutical production value chain, generated organic sales growth of 8.0% in 2017. Following restrained organic sales growth in the first half of the year, demand from several major accounts increased slightly towards year-end. By contrast, demand from regional accounts developed very well throughout 2017. Net sales for this business unit increased by a total of 6.0% to € 2,241 million (201611: € 2,115 million). The share of sales generated by Process Solutions represented 38% (2016: 37%) of Life Science net sales. All Process Solutions businesses contributed to this strong performance.

The Research Solutions business unit, which provides products and services to support life science research for pharmaceutical, biotechnology and academic research laboratories, posted organic sales growth of 3.0% in 2017. In addition to initial sales synergies from the acquisition of Sigma-Aldrich, Lab & Specialty Chemicals was the key driver of net sales growth for Research Solutions, which increased to € 2,066 million (20161: € 2,045 million), representing 35% (2016: 36%) of the business sector’s net sales.

The Applied Solutions business unit generated organic sales growth of 4.7% with its broad range of products for researchers as well as scientific and industrial laboratories. Including exchange rate and portfolio effects, net sales rose to € 1,575 million (20161: € 1,498 million) representing 27% (2016: 27%) of the business sector’s net sales. The sales performance of Applied Solutions was driven by all business fields except Biosystems & Regulated Materials.

1Previous year’s figures have been adjusted due to an internal realignment.

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Life ­Science

Net sales components by business unit – 2017

€ million/change in % Net sales Organic growth1 Exchange rate effects Acquisitions/ divestments Total change
Process Solutions 2,241 8.0% – 2.0% – 0.1% 6.0%
Research Solutions 2,066 3.0% – 1.6% – 0.3% 1.0%
Applied Solutions 1,575 4.7% – 1.6% 1.9% 5.1%
1
Not defined by International Financial Reporting Standards (IFRS).

The results of operations developed as follows:

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Life ­Science

Results of operations

Change
€ million 2017 in % 2016 in % € million in %
Net sales 5,882 100.0% 5,658 100.0% 224 4.0%
Cost of sales – 2,588 – 44.0% – 2,679 – 47.4% 92 – 3.4%
(of which: amortization of intangible assets)1 (– 60) (– 63) (3) (– 4.4%)
Gross profit 3,294 56.0% 2,978 52.6% 315 10.6%
 
Marketing and selling expenses 1,734 – 29.5% – 1,706 – 30.1% – 28 1.6%
(of which: amortization of intangible assets)1 (– 445) (– 453) (8) (– 1.9%)
Administration expenses – 261 – 4.4% – 248 – 4.4% – 13 5.4%
Research and development costs – 241 – 4.1% – 260 – 4.6% 18 – 7.0%
(of which: amortization of intangible assets)1 (– 1) (– 1) (–) (–)
Other operating expenses and income – 224 – 3.8% – 209 – 3.7% – 15 7.3%
Operating result (EBIT)2 834 14.2% 556 9.8% 277 49.8%
 
Depreciation/amortization/impairment losses/ reversals of impairment losses 746 12.7% 822 14.5% – 75 – 9.2%
(of which: adjustments) (3) (27) (– 24) (– 87.4%)
EBITDA2 1,580 26.9% 1,378 24.4% 202 14.6%
 
Restructuring costs 5 1 4 > 100.0%
Integration costs/IT costs 114 122 – 8 – 6.6%
Gains (–)/losses (+) on the divestment of businesses 1
Acquisition-related adjustments 63 150 – 88 – 58.3%
Other adjustments 22 22
EBITDA pre2 1,786 30.4% 1,652 29.2% 134 8.1%
1
Excluding amortization of internally generated or separately acquired software.
2
Not defined by International Financial Reporting Standards (IFRS).

In 2017, gross profit increased by 10.6% to € 3,294 million (2016: € 2,978 million). In 2016, cost of sales contained higher expenses from the step-up of inventories as a result of the first-time consolidation of Sigma-Aldrich. In addition, the strong increase in gross profit was attributable to organic sales growth as well as the positive effect from the acquisition of BioControl Systems, which more than offset considerable negative foreign exchange effects. Marketing and selling expenses increased by 1.6% to € 1,734 million (2016: € 1,706 million) while R&D expenses decreased by – 7.0% to € 241 million (2016: € 260 million). Other operating expenses and income (net) increased by 7.3% to € – 224 million (2016: € – 209 million), among other things owing to a provision set up for litigation risks in connection with the antitrust review proceedings for the acquisition of Sigma-Aldrich (see Note (27) ‟Other provisions” in the Notes to the Consolidated Financial Statements). Within the scope of the calculation of EBITDA pre, these expenses were eliminated accordingly. In ­comparison with 2016, the operating result (EBIT) of Life Science rose by € 277  million to € 834 million (2016: € 556 million). After depreciation and amortization and adjustments, EBITDA pre rose by 8.1% to € 1,786 million (2016: € 1,652 million). This reflects the strong organic sales performance of the combined Life Science business, which continues to focus on actively managing costs and realizing the planned synergies from the acquisition of Sigma-Aldrich.

The development of EBITDA pre in the individual quarters in comparison with 2016 is presented in the following overview:

­LIFE SCIENCE

EBITDA pre1 and change by quarter2

€ million/change in %

1 Not defined by International Financial Reporting Standards (IFRS).
2 Quarterly breakdown unaudited.

Development of business free cash flow

In 2017, the business free cash flow of our Life Science business sector rose by 22.5% or € 258 million to € 1,402 million (2016: € 1,144 million). The increase was primarily driven by the positive development of EBITDA pre, inventories, and receivables. This was partly offset by higher capital spending.

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­Life ­Science

Business free cash flow1

Change
€ million 2017 2016 € million in %
EBITDA pre1 1,786 1,652 134 8.1%
Investments in property, plant and equipment, software as well as advance payments for intangible assets – 371 – 313 – 59 18.7%
Changes in inventories2 28 3 25 100.0%
Changes in trade accounts receivable as well as receivables from royalties and licenses – 41 – 64 23 – 36.4%
Elimination first-time consolidation of Sigma-Aldrich – 146 146 – 100.0%
Elimination first-time consolidation of BioControl Systems2 12 – 12 – 100.0%
Business free cash flow1 1,402 1,144 258 22.5%
1
Not defined by International Financial Reporting Standards (IFRS).
2
Previous year’s figures have been adjusted, see Note (4) ‟Acquisitions and divestments” in the Notes to the Consolidated Financial Statements.

The development of business free cash flow items in the individual quarters in comparison with 2016 is presented in the following ­overview:

­LIFE SCIENCE

EBITDA pre1 and change by quarter2

€ million/change in %

1 Not defined by International Financial Reporting Standards (IFRS).
2 Quarterly breakdown unaudited.