Q2 2022: Merck KGaA, Darmstadt, Germany, Delivers Robust Growth Despite Headwinds

Results of the second quarter of 2022

• Group net sales rise by 14.3% to € 5.6 billion
• All business sectors contribute to strong organic sales growth of 6.6%, especially the “Big 3” growth drivers
• EBITDA pre up by 13.1% to € 1.8 billion; EBITDA pre margin at 32.0%
• Cost inflation is partly offset by price increases

Forecast for fiscal 2022

• Guidance for Group organic growth confirmed
• Stronger positive currency effects expected for fiscal 2022

Merck KGaA, Darmstadt, Germany, a leading science and technology company, continued its growth trajectory in the second quarter of 2022 despite a challenging environment. Net sales increased by 14.3% compared with the second quarter of 2021 to € 5,568 million. All business sectors contributed to the strong organic sales increase of 6.6%, especially the “Big 3” growth drivers of the Group: Process Solutions and Life Science Services in Life Science, new Healthcare products as well as Semiconductor Solutions in Electronics. Despite the price increases for raw materials and logistics, EBITDA pre rose organically by 3.2% to € 1,782 million. For fiscal 2022, the company confirms its guidance for organic growth of Group net sales and EBITDA pre.

“The second quarter of 2022 underlines the resilience of our strategy to generate growth and with that, value for our patients and customers. We continued to deliver despite major external challenges in our operating environment. A record quarter in Life Science, strong performance of our new Healthcare products, and the double-digit growth of Semiconductor Solutions within our Electronics business demonstrate the strength of our globally diversified business,” said Belén Garijo, Chair of the Executive Board and CEO of Merck KGaA, Darmstadt, Germany.

In the second quarter of 2022, the Group realized further strategically important investments that will contribute to its medium-term growth target of € 25 billion in sales by 2025. In Cork, Ireland, the company is investing around € 440 million until 2027 to expand its production capacity for filtration products and membranes. At the Chinese site in Wuxi, the Group is spending around € 100 million on additional local production capacities for biopharma single-use assemblies. Since opening a € 59 million facility in Verona, Wisconsin, United States, in June 2022, the company is one of the leading contract development and manufacturing organizations (CDMO) of high-potent active pharmaceutical ingredients. These ingredients are used in novel cancer therapies, including antibody drug conjugates (ADCs). Targeted capital allocation measures such as these are enabling the company to strengthen the basis for efficient future growth.

Organic sales growth in all business sectors

In the second quarter of 2022, the company achieved strong organic sales growth of 6.6%. Foreign exchange effects had a positive impact of 7.2%. These were due especially to the development of the U.S. dollar, the Chinese renminbi and the Taiwanese dollar. The acquisition of the biopharmaceutical contract development and manufacturing organization Exelead Inc., USA, (Exelead) was responsible for a portfolio-related sales increase of € 25 million or 0.5%.

EBITDA pre, the most important financial indicator used to steer operating business, rose by 13.1% to € 1,782 million. Organic earnings growth was 3.2%, driven by the Life Science business sector. EBITDA pre benefited from a positive foreign exchange effect of 9.5%. Relative to net sales, the EBITDA pre margin was 32.0%.

Earnings per share pre improved by 17.9% to € 2.64. Net financial debt amounted to € 10.2 billion on June 30, 2022. Operating cash flow was € 852 million. The decrease of –4.1% compared with the second quarter of 2021 was mainly due to higher working capital. The increase in working capital reflects the strong overall business development but also the consequences of global supply chain disruptions.

Good business performance in the first half of 2022

In the first half of 2022, the Group increased net sales by 13.3% (organically 7.2%) compared with the same period of 2021 to € 10,766 million. All business sectors contributed to this positive development, with Life Science and Electronics in particular delivering strong organic growth. In the first six months of 2022, EBITDA pre grew by 10.5% (organically: 2.4%) to € 3,411 million and earnings per share pre rose 14.3% to € 5.05.

Life Science: Organic sales growth in mid-teens percentage range in the core business amid expected decline in pandemic-related demand

In the second quarter of 2022, Life Science delivered double-digit organic sales growth of 10.4%. Including currency tailwinds of 7.4% and a portfolio effect of 1.1% from the acquisition of Exelead, net sales of the business sector grew by 19.0% compared with the second quarter of 2021 to € 2,648 million. This positive development was mainly driven by organic growth in the core business in the mid-teens percentage range amid an expected decline in pandemic-related demand.

·         The Process Solutions business unit, which markets products and services for the entire pharmaceutical production value chain, generated organic sales growth of 12.4%. This development was primarily attributable to strong demand in the core business in all regions amid the expected decline in pandemic-related demand.

·         Products and services to support research activities are combined in Science & Lab Solutions. In the second quarter of 2022, this business reported organic sales growth of 6.4%.

·         Life Science Services, which offers fully integrated Contract Development and Manufacturing Organization (CDMO) and Contract Testing services, increased net sales organically by 24.6%.

EBITDA pre of the Life Science business sector developed very positively in the second quarter of 2022, rising by 21.3% to € 1,006 million. The organic increase of 14.5% exceeded organic sales growth of 10.4%, despite higher logistics costs and further investments in future growth. The EBITDA pre margin improved to 38.0%. Among other things, price increases contributed to this.

Healthcare: Business with new products drives growth

In the second quarter of 2022, the Healthcare business sector reported organic sales growth of 1.4%. The strong previous year quarter was favorably impacted by around € 50 million from the temporary contract manufacturing for Eli Lilly and Company, USA, (Eli Lilly). Including positive foreign exchange effects of 6.2%, net sales amounted to € 1,924 million, an increase of 7.6%. The key growth driver was business with new products such as Bavencio and Mavenclad.

·         In the second quarter of 2022, the Oncology franchise delivered organic growth of 8.1%, which was fueled especially by the strong 60.7% increase in sales of the immuno-oncology drug Bavencio. This increase was primarily attributable to the further gain of market shares in connection with first-line maintenance therapy in patients with locally advanced or metastatic urothelial carcinoma (UC), particularly in Europe and Japan. The oncology drug Erbitux saw an organic sales decline of –9.0% owing to the temporary contract manufacturing agreement with Eli Lilly in the second quarter of 2021.

·         Sales of the Neurology & Immunology franchise declined organically by
–1.2%. Mavenclad, for the treatment of relapsing multiple sclerosis, generated organic sales growth of 26.6%. The multiple sclerosis drug Rebif saw a decrease of –18.9%.

·         The Fertility franchise recorded a moderate organic sales decline of –2.7% in the second quarter of 2022, while the Cardiovascular, Metabolism and Endocrinology franchise grew moderately by 2.7%.

In the second quarter of 2022, EBITDA pre of the Healthcare business sector increased by 3.9% compared with the second quarter of 2021 to € 604 million. An organic earnings decline of –9.5% was countered by positive foreign exchange effects of 13.4%. The strong result of the second quarter of the previous year was supported by the temporary supply agreement with Eli Lilly. The EBITDA pre margin was 31.4%.

Electronics: Continued strong growth of Semiconductor Solutions

In the second quarter of 2022, net sales of the Electronics business sector grew by 16.3% to € 996 million. Organically, sales rose by 7.4%, driven especially by the continued strong growth in Semiconductor Solutions. Positive foreign exchange effects increased sales by 8.9%.

·         Net sales of the Semiconductor Solutions business unit increased organically by 20.3% to € 653 million in the second quarter of 2022, representing around two-thirds of the sales of the Electronics business sector. Apart from strong demand, organic growth was supported by price increases implemented by the Group due to the impact of inflation on the costs of raw materials and transport.

·         Net sales of the Display Solutions business unit declined organically by
‑15.9% particularly as a result of weaker demand for liquid crystals.

·         Net sales of Surface Solutions grew organically by 2.0% in the second quarter of 2022, especially due to higher demand and improved pricing in Cosmetics.

EBITDA pre of the Electronics business sector increased in the second quarter of 2022 by 13.7% to € 293 million. An organic decline of –1.9% was more than offset by positive foreign exchange effects of 15.5%. Cost inflation was partly offset by price increases in Semiconductor Solutions. The EBITDA pre margin was 29.4%.

Group forecast for fiscal 2022 confirmed

Merck KGaA, Darmstadt, Germany, confirms the forecast for the organic growth of net sales (6% to 9%) and EBITDA pre (5% to 9%) for the Group. For fiscal 2022, the company expects stronger positive foreign exchange effects of 5% to 8% for net sales (previously: 3% to 6%) and of 6% to 10% for EBITDA pre (previously: 4% to 8%). Based on that, the guidance for fiscal 2022 is as follows:

·         Group net sales of between € 21.9 billion and € 23.0 billion (previously:
€ 21.6 billion to € 22.8 billion)

·         EBITDA pre in a corridor of € 6.75 billion to € 7.25 billion (previously: € 6.6 billion to € 7.1 billion)

·         Earnings per share pre of € 9.85 to € 10.75 (previously: € 9.60 to € 10.50), based on a tax rate of 23%.

Overview of the key figures for the second quarter of 2022