Group

Overview of 2022

• Group net sales up € 2.5 billion or 12.9% to € 22.2 billion (2021: € 19.7 billion)
• Organic sales growth of 6.4%; foreign exchange effects of 6.1%
• Group EBITDA pre improves by 12.2% to € 6.8 billion (2021: € 6.1 billion), with the EBITDA pre margin amounting to 30.8% (2021: 31.0%)
• Earnings per share pre increases by 15.3% to € 10.05 (2021: € 8.72)
• Operating cash flow of the Group amounts to € 4.3 billion (2021: € 4.6 billion)
• Reduction in net financial debt of 4.9% to € 8.3 billion (December 31, 2021: € 8.8 billion)

Development of sales and results of operations

In fiscal 2022, the Group generated net sales of € 22,232 million (2021: € 19,687 million), representing a year-on-year increase of € 2,546 million or 12.9%. This positive development was attributable to organic net sales growth of € 1,262 million or 6.4% and was driven by all of the Group’s business sectors. Positive foreign exchange effects, which resulted primarily from the development of the U.S. dollar and the Chinese renminbi, led to an increase in net sales of € 1,208 million or 6.1% in fiscal 2022. The portfolio-related net sales increase of € 76 million or 0.4% mainly resulted from the acquisition of Exelead Inc., United States, which closed on February 22, 2022.

The net sales in the individual quarters as well as the respective organic growth rates in 2022 are presented in the following graph:

Group

Net sales and organic growth¹ by quarter²
€ million/organic growth in %

Net sales in the Life Science business sector increased by € 1,389 million or 15.4% year-on-year to € 10,380 million (2021: € 8,992 million). This development was attributable to organic growth of 8.2%, which was supported by a positive foreign exchange effect of 6.4% and an increase in net sales of 0.8% due to the acquisition of Exelead Inc., United States. Accounting for 47% of Group sales (2021: 46%), Life Science was the strongest business sector in terms of net sales. It was followed by Healthcare with 35% of Group sales (2021: 36%), where net sales rose by € 750 million or 10.6% to € 7,839 million in the year under review (2021: € 7,089 million). Organic sales growth of 5.5% was accompanied by positive foreign exchange effects of 5.1%. The € 407 million or 11.3% increase in net sales in the Electronics business sector to € 4,013 million (2021: € 3,606 million) resulted from organic net sales growth of 3.7% and positive foreign exchange effects of 7.6%. The percentage contribution of Electronics to Group net sales was unchanged year-on-year at 18%.

Group

Net sales by business sector -2022
€ million/% of net sales

In fiscal 2022, the Group recorded the following regional sales performance:

The Consolidated Income Statement of the Group is as follows:

The positive business performance in fiscal 2022 led to an increase of 11.1% in the Group’s gross profit to € 13,705 million (2021: € 12,335 million). The resulting gross margin of the Group, i.e. gross profit as a percentage of net sales, amounted to 61.6% (2021: 62.7%).

Group-wide research and development costs rose by 3.9% to € 2,521 million in 2022 (2021: € 2,426 million) and led to a research spending ratio (research and development costs as a percentage of net sales) of 11.3% (2021: 12.3%). Accounting for a 70% (2021: 73%) share³ of Group R&D spending, Healthcare was the most research-intensive business sector of the Group. Further information can be found in the “Research and Development” chapter.

Group

Research and development costs by business sector¹ – 2022
€ million/%

Net other operating expenses and income increased to € -685 million in fiscal 2022 (2021: € -202 million). This was due to higher other operating expenses, which were significantly influenced by impairment losses on non-financial assets and a negative currency result from cash flow hedging as well as higher expenses for profit share agreements in the Healthcare business sector. In addition, other operating income declined as a result of lower upfront, milestone and license payments in the Healthcare business sector in particular (see explanations under “Healthcare”). Detailed information about the development and composition of other operating expenses and income can be found in Note (13) “Other operating income” and Note (14) “Other operating expenses” in the Notes to the Consolidated Financial Statements.

The 7.1% increase in the operating result (EBIT) to € 4,474 million (2021: € 4,179 million) was mainly driven by the positive development of gross profit.

An increase in provisions for obligations under long-term variable compensation programs (Long-Term Incentive Plan of Merck KGaA, Darmstadt, Germany) had an adverse effect on the operating result in the year under review, with the rise in the intrinsic value of the Share Units of Merck KGaA, Darmstadt, Germany, being reflected in the respective functional costs depending on the area of activity of the plan beneficiaries.

The financial result improved by 26.7% to € -187 million in fiscal 2022 (2021: € -255 million). This was due in particular to the positive development of net interest income compared with the previous year. Details about the Group’s financial income and expenses can be found in Note (40) “Finance income and expenses/Net gains and losses from financial instruments” in the Notes to the Consolidated Financial Statements.

Income tax expense amounted to € 948 million in 2022 (2021: € 859 million) and resulted in a tax rate of 22.1% (2021: 21.9%). Further information on income taxes can be found in Note (15) “Income tax” in the Notes to the Consolidated Financial Statements.

The net income attributable to the shareholders of Merck KGaA, Darmstadt, Germany, increased by 8.9% to € 3,326 million (2021: € 3,055 million) and resulted in an improvement in earnings per share to € 7.65 in fiscal 2022 (2021: € 7.03).

EBITDA pre, the key financial indicator used to steer operating business, rose by € 746 million or 12.2% to € 6,849 million (2021: € 6,103 million). Organic earnings growth amounted to 6.1% and foreign exchange effects had an impact of 6.4%, while portfolio effects amounted to -0.3%. The EBITDA pre margin of the Group (EBITDA pre as a percentage of net sales) amounted to 30.8% (2021: 31.0%). The reconciliation of the operating result (EBIT) to EBITDA pre is presented in the “Internal Management System” chapter.

The development of EBITDA pre in the individual quarters in comparison with 2021 as well as the respective growth rates are presented in the following overview:

Group

EBITDA pre¹ and change by quarter²
€ million/change in %

The biggest contribution to the growth in Group EBITDA pre came from the Life Science business sector, which generated EBITDA pre of € 3,760 million, up 14.4% on the previous year (2021: € 3,287 million). This meant the EBITDA pre margin in Life Science amounted to 36.2% in fiscal 2022 (2021: 36.6%). The share of Group EBITDA pre attributable to the Life Science business sector (not taking into account the € -579 million reduction due to Corporate and Other) rose to 51% (2021: 50%).

EBITDA pre in the Healthcare business sector increased by 15.0% to € 2,477 million (2021: € 2,153 million). Accordingly, the EBITDA pre margin rose to 31.6% in fiscal 2022 (2021: 30.4%). The share of Group EBITDA pre attributable to the Healthcare business sector was unchanged year-on-year at 33%.

The Electronics business sector increased its EBITDA pre by 5.7% to € 1,192 million in fiscal 2022 (2021: € 1,128 million). The share of Group EBITDA pre attributable to the Electronics business sector amounted to 16% in 2022 (2021: 17%). The EBITDA pre margin declined to 29.7% (2021: 31.3%).

Group

EBITDA pre¹ by business sector² – 2022
€ million/%

Net assets and financial position

The total assets of the Group amounted to € 48,526 million as of December 31, 2022 (December 31, 2021: € 45,362 million), representing an increase of 7.0% or € 3,164 million in the year under review. In addition to the impact of the successful operating business performance, this increase was due in particular to exchange rate changes.

The year-on-year increase in property, plant and equipment was attributable to additions of € 1,730 million (2021: € 1,443 million), which significantly exceeded depreciation and disposals in the reporting period.

Of the additions to property, plant and equipment in 2022, € 279 million (2021: € 198 million) related to strategic investments in Germany, including € 234 million for the expansion of the Darmstadt site. Among other things, the Life Science business sector invested € 39 million in a new membrane production plant and € 35 million in a new filling and logistics center in Schnelldorf. The Healthcare business sector also invested € 28 million in a new research center. Outside Germany, high levels of strategic investments were recorded in the United States (€ 232 million), Ireland (€ 97 million) and Switzerland (€ 80 million) in particular. In the United States, the Life Science business sector invested € 23 million in a new manufacturing facility for gene therapy products in Carlsbad, while the Electronics business sector invested € 21 million in a new production facility for specialty gases for the semiconductor industry in Hometown. In Ireland, the Life Science business sector invested € 76 million in the expansion of membrane production capacities and the construction of a new filtration plant in Cork. In Switzerland, the Healthcare business sector invested € 54 million in a new development center for the manufacture of biotechnological products.

In fiscal 2022, the equity of the Group rose by 21.4% to € 26,005 million (December 31, 2021: € 21,416 million). This increase was attributable not only to profit after tax (€ 3.3 billion), but especially to a positive currency translation difference (€ 1.2 billion) as well as adjustments to pension provisions recognized in equity owing to the increase in the discount factors (€ 1.4 billion). By contrast, the dividend payments and profit distribution in the reporting year served to reduce equity (see “Consolidated Statement of Changes in Net Equity” in the Consolidated Financial Statements). The equity ratio improved by more than six percentage points to 53.6% (December 31, 2021: 47.2%).

The composition and the development of net financial debt were as follows:

The composition of operating cash flow, which is one of the three most important key performance indicators alongside net sales and EBITDA pre, is presented in the “Internal Management System” chapter.

In fiscal 2022, operating cash flow decreased by -7.7% to € 4,259 million (2021: € 4,616 million). Further information about the development of the operating cash flow can be found in the “Consolidated Cash Flow Statement” in the Consolidated Financial Statements and Note (16) “Operating cash flow” in the Notes of the Consolidated Financial Statements. The distribution of operating cash flow across the individual quarters and the percentage changes in comparison with 2021 were as follows:

Group

Operative cash flow¹ and change by quarter²
€ million/change in %

The capital market uses the assessments published by rating agencies to help lenders assess the risks of a financial instrument used by the Group. We are currently rated by Standard & Poor’s, Moody’s, and Scope. Standard & Poor’s has issued a long-term credit rating of A with a stable outlook, Moody’s a rating of A3 with a stable outlook, and Scope a rating of A– with a stable outlook. An overview of the development of our rating in recent years is presented in the Report on Risks and Opportunities.

The development of key balance sheet figures was as follows:

Overall assessment of business performance and economic situation

Despite the challenging societal and macroeconomic environment, the Group can look back on a successful fiscal 2022 in which it remained on its growth path. However, growing geopolitical tensions mean that the Group remains compelled to respond to various challenges and uncertainties around the world. Nevertheless, the strong business performance in fiscal 2022 once again served to underline our impressive resilience in difficult times, which has always proved to be an important competitive advantage in the past.

Our ‘Big 3’ growth drivers – Process Solutions and Life Science Services in the Life Science business sector, new products from the Healthcare development pipeline, and Semiconductor Solutions in the Electronics business sector – made a particularly important contribution to our success. The Group generated sales growth in all regions in its three business sectors. All in all, the Group increased its net sales by 12.9% or € 2.5 billion to € 22.2 billion in fiscal 2022. With organic growth of 6.4% or € 1.3 billion, we reached an important milestone on the way to achieving our medium-term growth target of sales of around € 25 billion by 2025. Our most important key performance indicator, EBITDA pre, increased by 12.2% to € 6.8 billion. In light of our successful performance in fiscal 2022, we will propose to the Annual General Meeting that the dividend payment be increased by 19% to € 2.20 per share.

The solid financing policies of the Group were reflected in its consistently good key balance sheet figures. The equity ratio was an impressive 53.6% as of December 31, 2022 (December 31, 2021: 47.2%). Net financial debt was reduced further, amounting to € 8.3 billion at the end of the fiscal year.

The Group’s extremely successful business performance allowed it to continue to expand its excellent financial flexibility. This forms the basis for realizing our ambitious investment and growth plans and means we are still planning to increase total investments between 2021 and 2025 by more than 50% compared with the previous five-year period.

Based on our solid net assets and financial position as well as our profitable operations, we view the economic situation of the Group as positive overall. Thanks to our resilient business model and our clear positioning as a science and technology company, we are well positioned even in economically challenging times.