Merck Kgaa

Thank you very much, Sharon. A very warm welcome to this Merck Q2 2023 results call. My name is Konstantin Fest. I'm Head of Investor Relations here at Merck. I'm delighted to be joined today by Belén Garrillo, CEO of the group, as well as Helene von Röder, Group CFO. Also for the Q&A part of this call, we'll be joined by Matthias Heinze, CEO of Life Science, Peter Günther, CEO of Healthcare, Anne Beckmann, CEO of Electronics. In the next couple of minutes, we'd like to run you through the key slides of the presentation. And after that, we'll have our Q&A. Also note that we've reserved about roughly one hour for this conference call, as some of us will have to catch a plane due to road shows. With this, I'd like to now hand over to Belen to kick it off.

Thank you, Dean, and very pleased to welcome everybody to our second quarter earnings call. And please stay on slide number five for the highlights. So first of all, Q2 has once again demonstrated the resilient nature of our multi-industry business model. even as the challenges have increased for some of our business sector and more specifically for life science and to a certain extent for electronics in relation to doctors. Before I start with the highlights of the quarter, please allow me to to her first earnings call as the Chief Financial Officer of Merck. Now back to our Q2 earnings and the highlights. One, organically, group revenues were down by 1% and EBITDA pre-declined by 7%. Currency has now become a true headwind. And this currency impact, negative impact, paired with a minor portfolio effect led to reported sales decreasing by 5%, totaling 5.3 billion euros. had a more diluted effect on EBITDA pre than on sales. Accordingly, reported EBITDA pre of 1.6 billion was down 13% versus late. EPS pre of 2.20 euros was down 17% year-on-year. Healthcare was the best performer with 12% organic stage growth, and that was driven by Mavenclad, Vavencio, and our Fertility franchise. Mavenclad is on its way to reach blockbuster status in 2023. Life science showed a 4% decline in the core business, and this was due to a more pronounced stocking in process solutions, which we have now started to see among our smaller and regional customers. Amid the continuing decline in the COVID-19 business, total sales in life science were now down 9%, that's organic, in Q2. This decline also had a negative effect on the EBITDA pre-margin in life science and consequently the one of the group. In electronics, semiconductor solutions decreased 5% organically, again outperforming a declining market, which as expected became more challenging also in the second quarter. In combination with a continued decline in display solutions, organic sales were down by 6%. While the business environment for life science and electronics is under increasing pressure, healthcare was the star performer of the quarter and they deliver very strong growth i am therefore pleased to say that our multi-industry business models business model continues to demonstrate resilience through this transitional year 2023 in order to reflect the developments in the business sectors and to a lesser extent the adverse currency movements just in our 2023 guidance. Now expecting net sales in a range of 20.5 billion to 21.9 billion, EBITDA-free in a range of 5.8 billion to 6.4 billion, and EPS-free in a range of 8.25 to 9.35, thereby lowering the ranges provided with our Q1 results in May. Nevertheless, I'd like to highlight that the upper half of the guidance ranges still fall within our previous guidance balance. And more details on the assumptions will be shared at the end of the presentation. Moving into slide number six, we will have where we show an overview of our performance by business sector. And as you can see, and we already mentioned, Healthcare was the strongest contributor to the organic sales development in two and largely observed the declines in life science and electronics. Our key growth engines in the quarter were our new product launches as well as the fertility franchise within our healthcare business sector. In fact, healthcare showed excellent organic growth of 12% in a challenging operating environment And this was mainly driven by almost 30% growth from recent launches, ratio up 27% and Mavenclad up by 28% in Q2. Our established portfolio means CM&E, Fertility and Herbitux also contributed with an organic sales performance of plus 8%. From a franchise perspective, Fertility was the highlight. with organic growth of almost 25%, amplified by a competitor stock out, followed by oncology with an organic growth of close to 18%. Life science was down 4% in the core business in Q2, on this more pronounced the stocking in process solutions. As expected, COVID sales continued to be diluted to growth and were significantly down both year on year and sequentially. This resulted in sales decreasing by 9% in life science in the second quarter. As some of you may have noticed already, and just to put the quarterly performance of life science into perspective, regardless of any influence of the COVID period, If we would look at the same period in 2019, the year before the corona pandemic started, our life science business has shown an annualized high single organic growth rate, despite all the recent market challenges. In electronics, our semi-business continued to outperform in a declining market. As the market became more challenging in Q2, as we expected, our semi-sales declined by 5% organically in the quarter. This paired with a significant decline in display solutions, although not as the one we saw in Q1, this led to an overall sales decline for electronics of 6% organically in Q2. A small portfolio effect in electronics, contributed marginally to sales growth for the group. Currency served as a true headwind across the board on sales, with the strongest negative effect on healthcare. Ebitda pre came at 1.55 billion, down organically by 7%, which was mainly driven by life science, where organic EBITDA-free was down by minus 26% in Q2 on lost volumes in process solutions and negative mixed effects in the core and of course also due to lower COVID sales. EBITDA-free in healthcare was strongly by more than 30% organically in Q2, boosted by excellent sales growth, lower gross profit growth comes, and a small upside from portfolio management with no impact of the Babensfield repatriation at all in the EBITDA-PRI of healthcare in Q2. EBITDA-PRI in electronics was down 5% in Q2, and that was supported by patents and cooperation agreement with Universal Display Corporation that Kai may detail later on. Importantly, this gives us access to key intellectual property that spans our materials portfolio in OLEP, supporting our mid-term growth. While this agreement was part of our full-year guidance in electronics, the exact timing and the accounting effect during 2023 go to predict, and as I mentioned already, I may give you further color on this later on in the Q&A. Currency was a stronger set-win on EBITDA-free than on sales, and this is due to emerging market currency and Asian currencies such as the Chinese renminbi and the Japanese yen. Moving into the regional view on slide number seven, what we see is that our three larger regions were down organically. North America declined by 3.2%, and this was due to the sharp drop in lifestyle and sales, while Europe was down 1.5% organically, and this was mainly due to process solution. APAC was down 2.6% organically in Q2, mainly due to electronics. Overall, second quarter demonstrates one of the advantages of our globally diversified business setup, Combined with the right mix of business, or combining, better said, the right mix of business sectors, the regionalized footprint mitigating potential negative impact. Our two smallest regions, LATAM and MEA, Middle East and Africa, increased in the low to mid teens percentage. And with this, I'm going to hand it over to Helene to provide additional insights on our Q2 financials.

So thank you very much, Belen, and a warm welcome also from my side. Let's dive into the numbers. I am now moving to slide nine for an overview of our key figures for the first quarter. We achieved almost flat sales organically in Q2 at minus 1.1%. They're continuing to show resilience in an increasingly challenging business environment. supported by a multi-industry setup. Taking into account currency headwinds of minus 3.7%, as well as a minor portfolio effect from the acquisition of Meccaro, net sales declined by minus 4.8% to 5.302 billion in Q2. EBITDA pre was down by minus 12.8%, 1.5 billion, with the FX headwind of minus 5.7%, stronger here compared with sales. And EPS pre-declined by minus 16.7% to 2.20 euros. The operating cash flow came in at 622 million, which represents a decrease of minus 27% over Q2 2022, mainly driven by the decline in EBITDA pre-declined. and looking at net financial debt, which increased by 1.027 billion compared with the end of December. This is mainly due to investments for future growth and short-term financial investments. However, do bear in mind we also paid the dividend to shareholders due to.