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Review of Forecast against Actual Business Developments

The forecast of the Group for fiscal 2019 published in the Annual Report for fiscal 2018 comprised the forecast for the Group as well as the forecast for the three business sectors Healthcare, Life Science, and Performance Materials. On April 12, 2019, we signed a final agreement to acquire Versum Materials Inc. for US$ 53 per share. On October 7, 2019, the successful closing of the acquisition of Versum Materials for a purchase price of approximately € 5.3 billion was announced. Consequently, the acquisition was not included at the time the Annual Report for 2018 was prepared and the forecast at the time did not include the Versum Materials business.

Due to this portfolio change, the following analysis reflects the new structure of the Group and only includes the Versum Materials business from the date the acquisition was successfully closed.

Net sales

For 2019, we had forecast moderate organic net sales growth for the Group. In the course of the year the Group reported a more dynamic organic sales growth driven particularly by the strong organic growth of Life Science. This meant that we generated a solid organic net sales growth of +5.3%, all told, in fiscal 2019, thus slightly exceeding our forecast. Due to the unfavorable development of several currencies in emerging markets at the start of the year, we anticipated a slightly negative exchange rate effect on our net sales. Contrary to our original assessment, however, the trend of these currencies in the first half of 2019, especially in Latin America, was not as unfavorable as we had assumed at the start of the year. Furthermore, the depreciation of the euro against the U.S. dollar continued during this period. The exchange rate between the euro and the U.S. dollar remained supportive in the second half of the year compared with the previous year. The positive exchange rate effect in 2019 as a whole was +2.1% and thus slightly above our updated range. The portfolio effect due to the acquisition of Versum Materials was included in the forecast at the next possible date, following the successful completion of the acquisition. It was included in our reporting on the third quarter of 2019.

Healthcare

For our Healthcare business sector, we had forecast moderate organic sales growth at the start of the year. Sales growth of the business sector in 2019 as a whole was solid at +6.2% and thus slightly exceeded both our original forecast and our updated forecast in the first quarter, which provided for organic growth ranging between +4% and +6%. Growth was supported by the sales development of the base business and the significant growth contribution of our newly approved products, mainly Mavenclad® and, in particular, the successful market approval of Mavenclad® in the United States.

Life Science

Our Life Science business sector generated organic sales growth of +9.0% in 2019 and thus significantly exceeded our forecast of organic growth slightly above medium-term market growth in the amount of 4% per annum due to increased demand in our main customer industries. The forecast raised to between +8% and +9% in our reporting on the third quarter of 2019 was achieved. As expected, Process Solutions was the most dynamic business unit, delivering the largest contribution to organic sales growth within Life Science. Also as expected, Applied Solutions and Research Solutions contributed positively to the organic sales performance, albeit to a lesser extent than Process Solutions.

Performance Materials

For our Performance Materials business sector, we had forecast a moderate organic decline compared with the previous year. The main assumption was a continuing price decline in the Liquid Crystals business, which is only mitigated by a temporary rise in volume due to capacity expansions of customers in China. We also anticipated high growth momentum in Semiconductor Solutions, but this failed to materialize in fiscal 2019 due to weaker end markets. Against this backdrop, we updated our forecast of organic growth for the business in our reporting on the second quarter of 2019 to a range from -4% to -7%; we were within this range with a reported decline in growth of -6.5% for 2019. Following the successful completion of the acquisition of Versum Materials on October 7, 2019, this acquisition was also included in the forecast in our reporting on the third quarter of 2019 with an expected sales effect of around € 270 million. The reported acquisition-related increase in sales was slightly below this figure at € 250 million, which was due to phasing effects at Versum Materials in the second half of the year and a slight weakening on the relevant semiconductor end markets.

EBITDA pre

For 2019 we expected a strong organic growth of EBITDA pre amounting to a low teens percentage figure over the prior year for the Group. The assumption was based on growth driven by Healthcare and Life Science, which should be more than able to offset the decline of Performance Materials, and a positive contribution from the first-time application of IFRS 16 Leases. Furthermore, because of the unfavorable foreign exchange environment, we still expected negative exchange rate effects to burden EBITDA pre by between -3% and -4% over the prior year. In 2019, EBITDA pre came to € 4,385 million, equivalent to an increase of +15.4% compared with the prior year (2018: € 3,800 million). The organic growth of +11.3% entailed by this figure was in line with our forecast. By contrast, at +2.5% the foreign exchange effect on EBITDA pre in 2019 as a whole was substantially more positive than expected at the start of the year, although it was only slightly above the range of between 0% and +2% to which we had adjusted in the course of our reporting on the first quarter of 2019. The positive depreciation of the euro against the U.S. dollar in 2019 was more supportive than we expected at the start of the year. The portfolio effect of Versum Materials was included in the forecast at the next possible date, following the successful completion of the acquisition. It was included in our reporting on the third quarter of 2019.

Healthcare

For our Healthcare business sector, we were forecasting strong organic growth of EBITDA pre over the prior year due to substantial expected earnings contributions from our new products, particularly Mavenclad®, and a decline in development expenses in relation to sales as well as earnings contributions from the strategic alliance with GlaxoSmithKline plc. In addition to this, we had expected strongly negative exchange rate effects. In 2019, EBITDA pre in Healthcare amounted to € 1,922 million (2018: € 1,556 million). This is equivalent to an increase of +23.5% over 2018; the organic rise of +19.5% corresponded to the lower end of the forecast range we issued at the start of the year. The exchange rate effects had a substantially greater positive impact than expected at the start of the year, however. As a result, in our reporting over the course of the year, we ultimately narrowed our forecast range to between 0% and +2%. We closed out the year 2019 at +4.1%.

Life Science

For Life Science, we had expected a strong up to double-digit rise in organic EBITDA pre in percentage terms due to the expected organic sales growth. Thanks to a better-than-expected development of the main end markets, the forecast was raised in the course of the year. In our reporting on the third quarter of 2019, we forecast a range of between +12% and +14%. In fiscal 2019, the business sector generated organic growth of +14.4% to € 2,129 million and was thus at the top end of our forecast range. The exchange rate development supported EBITDA pre with +1.5% and was thus more positive than projected at the start of the year, when we forecast a moderately negative development.

Performance Materials

Owing to a price decline in liquid crystals, for which it was not expected that it would be able to be offset by growth in other businesses or active cost management, we forecast an organic decline of EBITDA pre in the Performance Materials business sector totaling a high single-digit to low teens percentage figure at the start of the year. For the exchange rate effects, we projected a roughly neutral impact on EBITDA pre over 2018. For 2019 as a whole, Performance Materials achieved an EBITDA pre of € 803 million (2018: € 786 million). This corresponded to an increase of +2.3% over 2018, of which -12.3% was attributable to the organic business performance and a further +6.1% to exchange rate developments. The forecast of organic growth was thus within the range we issued at the start of the year; however, the exchange rate trend ended up substantially more positive than we originally assumed. Our reporting on the third quarter of 2019, following the successful completion of the acquisition of Versum Materials on October 7, 2019, expected an earnings effect of around € 80 million to € 90 million from the acquisition for the year as a whole. The total reported portfolio effect of the Performance Materials business sector was +8.5% and slightly below this range. This is primarily attributable to phasing effects at Versum Materials in the second half of 2019, a weaker momentum in the relevant semiconductor end markets, and the negative portfolio contribution from the acquisition of Intermolecular.

Corporate and other

EBITDA pre of Corporate and Other, which reached a level of € –469 million in 2019, was within our forecast range of € -460 million to € -490 million that we specified in the reporting on the third quarter of 2019. Compared with the prior-year figure of € -381 million, this corresponded to a rise in costs of 23.0%. This development was mainly due to higher losses from currency hedging and resulted from exchange rate developments that were forecast differently. The rising organic costs from the further expansion of our innovation and digitalization initiatives corresponded to our original forecast.

Business free cash flow

For 2019, we expected business free cash flow of the Group to see a moderate increase. This forecast was exceeded with a rise of +8.9% to € 2,732 million (2018: € 2,508 million). In the Healthcare business sector, the increase of +22.1% over the prior year was in line with our forecast of growth in the low twenties percentage range, issued at the start of the year. The business free cash flow of the Life Science business sector was -1.3% below the prior year. We thus slightly exceeded our forecast of a moderate performance below the previous year. For the Performance Materials business sector, we anticipated a decline in the low teens range. With growth of 9.1% over the previous year, the business sector significantly exceeded the figure we forecast at the start of the year, mainly thanks to the acquisition of the Versum Materials business, which had not been included in the forecast issued at the start of the year but was included in our reporting on the third quarter of 2019 with an additional € 70 million to € 85 million.

 
10.71 KBEXCEL
GROUP
€ million Net sales EBITDA pre Business free cash flow EPS pre
Actual results 2018 14,836 3,800 2,508 € 5.10
Forecast for 2019 in the 2018 Annual Report Moderate organic growth

Slightly negative foreign exchange effect of -1% to -2%
Strong organic percentage growth in the low teens range

Negative foreign exchange effect of between -3% and -4%
Moderate increase  
Main comments Growth driven by Life Science and Healthcare, which more than offsets the decline of Performance Materials

Foreign exchange effect primarily resulting from several emerging market currencies
Growth driven by Healthcare and Life Science, which more than offsets the decline of Performance Materials

First-time application of IFRS 16 with a positive contribution of around € 130 million

Foreign exchange effect primarily resulting from several emerging market currencies
Higher EBITDA pre and positive effects in working capital offset higher investments in property, plant and equipment as well as digitalization initiatives  
Forecasts for 2019 in the interim report:        
Q1/2019 ~15,300 to 15,900

Organic growth of +3% to +5% vs. 2018

Exchange rate effect of 0% to +2%
~4,150 to 4,350

Organic growth of +10% to +13% vs. 2018

Exchange rate effect of 0% to +2%
~2,500 to 2,750 € 5.30 to € 5.65
Q2/2019 ~15,300 to 15,900

Organic growth of +3% to +5% vs. 2018

Exchange rate effect of 0% to +2%
~4,150 to 4,350

Organic growth of +10% to +13%
vs. 2018

Exchange rate effect of 0% to +2%
~2,550 to 2,800 € 5.30 to € 5.65
Q3/2019 ~15,700 to 16,300

Organic growth of +3% to +5% vs. 2018

Exchange rate effect of +1% to +2%

Versum Materials included with approximately 270
~4,230 to 4,430

Organic growth of +10% to +13% vs. 2018

Exchange rate effect of 0% to +2%

Versum Materials included with approximately 80 to 90
~2,600 to 2,850

Versum Materials included with 70 to 85
€ 5.30 to € 5.65
Results 2019 in € million 16,152
(+8.9%:+5.3% organic,
+1.4% portfolio,
+2.1% currency)
4,385
(+15.4%:+11.3% organic,
+1.6% portfolio,
+2.5% currency)
2,732
+8.9%
€ 5.56
+9.0%
 
10.86 KBEXCEL
HEALTHCARE
€ million Net sales EBITDA pre Business free cash flow
Actual results 2018 6,246 1,556 1,025
Forecast for 2019 in the 2018 Annual Report Moderate organic growth

Moderately negative foreign exchange effect
Strong organic growth rate in the low to mid-twenties percentage range­

Strongly negative foreign exchange effect
Increase in the low teens percentage range
Main comments At least stable sales development of the base business in organic terms

Substantial growth contribution of our newly approved products, particularly Mavenclad® ; expected market approval in the United States has been taken into account­

Negative foreign exchange effect due to trend of exchange rates on several growth markets
Expected substantial earnings contributions from our new products, especially Mavenclad® , more than offset negative mix effects associated with the projected decline of Rebif® ­

Moderate increase in research and development expenses due to the development of our pipeline, but down in relation to sales­

Earnings contributions from the strategic alliance with GlaxoSmithKline plc of approximately € 100 million and owing to license payments for Erbitux® that were lower than expected­

Negative foreign exchange effect due to trend of exchange rates on several growth markets
Rise in EBITDA pre­

Positive net working capital effects (including positive effects from the sale of the Consumer Health business)
Forecasts for 2019 in the interim report:      
Q1/2019 ~6,450 to 6,750

Moderate organic growth of +4% to +6%

Exchange rate effect of -1% to +2%
~1,820 to 1,950

Organic growth of +19% to +23%

Exchange rate effect of -2% to +3%
~1,200 to 1,300
Q2/2019 ~6,450 to 6,750

Solid organic growth of +4% to +6%

Exchange rate effect
of -1% to +2%
~1,830 to 1,940

Organic growth of +19% to +23%

Exchange rate effect
of -1% to +2%
~1,200 to 1,300
Q3/2019 ~6,500 to 6,700

Solid organic growth of
+4% to +6%

Exchange rate effect
0% to +2%
~1,830 to 1,940

Organic growth of +19% to +23%

Exchange rate effect
0% to +2%
~1,200 to 1,300
Results 2019 in € million
6,714(+7.5%:
+6.2% organic,
0.0% portfolio,
+1.3% currency)
1,922
(+23.5%:+19.5% organic,
0.0% portfolio,
+4.1% currency)
1,252
+22.1%
 
10.8 KBEXCEL
LIFE SCIENCE
€ million Net sales EBITDA pre Business free cash flow
Actual results 2018 6,185
1,840
1,393
Forecast for 2019 in the 2018 Annual Report Organic growth slightly above medium-term
market growth of 4% p.a.

Slightly negative foreign exchange effect
Strong organic growth of up to a double-digit percentage rate

Moderately negative foreign exchange effect
Moderately below
2018 levels
Main comments Process Solutions is likely to remain the strongest growth driver, followed by Applied Solutions

Research Solutions will also make a moderately positive contribution to the organic sales development

No material portfolio effect as a result of the sale of the flow cytometry business

Negative foreign exchange effect, particularly on account of the development of emerging market currencies
Organic earnings growth on account of the expected sales growth and slight margin expansion

In addition, positive contribution to organic earnings growth from the switch to IFRS 16

Negative foreign exchange effect, particularly on account of the development of emerging market currencies
Improved EBITDA pre

Increase in investments in property, plant, and equipment in strategic projects
Forecasts for 2019 in the interim report:      
Q1/2019 ~6,550 to 6,750

Organic growth of
+6% to +7%

Exchange rate effect
0% to +3%
~2,000 to 2,100
with an operating margin expansion
of 20 to 30 base points

Organic growth of around
+10% to +12%

Exchange rate effect
0% to +3%
~1,300 to 1,400
Q2/2019 ~6,620 to 6,820

Strong organic growth of
+7% to +8%

Exchange rate effect
0% to +3%
~2,020 to 2,120
with an operating margin expansion
of 20 to 30 base points

Organic growth of around
+11% to +13%

Exchange rate effect
0% to +2%
~1,350 to 1,450
Q3/2019 ~6,700 to 6,900

Organic growth of
+8% to +9%

Exchange rate effect
+1% to +3%
~2,040 to 2,140
with an operating margin expansion
of 20 to 30 base points

Organic growth of
+12% to +14%

Exchange rate effect
0% to +2%
~1,350 to 1,450
Results 2019 in € million
6,864
(+11.0%:+9.0% organic,
-0.6% portfolio,
+2.6% currency)
2,129
(+15.7%:+14.4% organic,
-0.2% portfolio,
+1.5% currency)
1,375
-1.3%
 
10.67 KBEXCEL
PERFORMANCE MATERIALS
€ million Net sales EBITDA pre Business free cash flow
Actual results 2018 2,406 786
588
Forecast for 2019 in the 2018 Annual Report Organically moderate decline from the prior year level

Exchange rate effect roughly neutral
Organic high single-digit to low double-digit percentage decline

Foreign exchange effect roughly neutral
Decline in the low teens
Main comments Strong growth momentum in the Semiconductor Solutions business unit

Continuing price decline in Liquid Crystals business, mitigated by a temporary rise in volume due to capacity expansions of customers in China

Neutral foreign exchange effect due to the development of the exchange rate of the euro against the U.S. dollar
Drop in liquid crystal prices cannot be offset by growth in other businesses and active cost management

Neutral foreign exchange effect due to the development of the exchange rate of the euro against the U.S. dollar
Decline in EBITDA pre
Forecasts for 2019 in the interim report:      
Q1/2019 ~2,250 to 2,400

Moderate organic decline of -3% to -6%


Exchange rate effect 0% to +2%
~700 to 760

Organic growth of
-7% to -11%

Exchange rate effect 0% to +4%
~500 to 600
Q2/2019 ~2,230 to 2,380

Organic decline of -4 % to -7 %


Exchange rate effect
0% to +2%
~685 to 745

Organic growth of -9% to -13%

Exchange rate effect +1% to +4%
~500 to 600
Q3/2019 ~2,250 to 2,400

Organic decline of -4 % to -7 %*


Exchange rate effect
+1% to +3%

Additionally around 270 due to Versum Materials
~695 to 755

Organic growth of
-9% to -13%*

Exchange rate effect
+3% to +5%

Additionally around 80 to 90 due to Versum Materials
~500 to 600

Additionally around 70 to 85
due to Versum Materials
Results 2019 in € million
2,574
(+7.0%:-6.5% organic,
+10.4% portfolio,
+3.1% currency)
803
(+2.3%:-12.3% organic,
+8.5% portfolio,
+6.1% currency)
641
+9.1%
*Lower half of the corridor
 
9.68 KBEXCEL
CORPORATE AND OTHER
€ million EBITDA pre Business free cash flow
Actual results 2018 -381 -497
Forecast for 2019 in the 2018 Annual Report* The expenses for Corporate and ­
Other will, in our opinion, show an ­
increase in the low to mid-teens ­
range on an organic basis in 2019. ­
This increase will be based on a ­
further expansion of our innovation ­
and digitalization initiatives. ­
A greater focus on the costs of the ­
administrative functions and ­
substantially reduced burden from ­
foreign exchange effects are likely ­
to partly offset the increase.
 
Main comments    
Forecasts for 2019 in the interim report:    
Q1/2019 ~-420 to -480 ~-500 to -580
Q2/2019 ~-420 to -480 ~-500 to -580
Q3/2019 ~-460 to -490 ~-500 to -580
Results 2019 in € million -469­
+23.0%
-536­
+7.9%