Merck Kgaa

Dear ladies and gentlemen, welcome to the Merck Investor and Analyst Conference Call on the third quarter 2023. As a reminder, all participants will be in a listen-only mode. I am now handing over to Konstantin Fest, Head of Investor Relations, who will lead you through this conference. Please go ahead, sir.

Thank you, Sharon. Dear ladies and gentlemen, a very warm welcome to this Merck Q3 2023 results call. My name is Konstantin Fest, I'm Head of Investor Relations here at Merck, and I'm delighted to have here today with me Belen Garrio, Group CEO, as well as Helena von Bröder, Group CFO. Also joining me for the Q&A part of this call are Matthias Heinze, CEO Life Science, Peter Günther, CEO Healthcare, as well as Kai Beckmann, CEO Electronics. In the first few minutes of this call, we will guide you through the key slides of this presentation, which will then be followed by Q&A. With this, I'd like to directly hand over to Belen to start the presentation. Over to you, Belen.

Thank you, Konstantin, and welcome everybody to our Q3 earnings call. I'm going to start on slide number five. Q3 has again shown the benefits of our multi-industry business model, with the temporary challenges having continued, of course, to affect some of our business sectors, especially life science, during this transitional year. Organically, group sales were down 4% and EBITDA pre-decline by 13%, mainly reflecting the temporary challenges affecting life science. The strong performance of healthcare partially compensated for life science and for electronics. Looking at Q3, the currency has become more of a headwind versus previous quarter, and this was as expected. And this paired with a very minor portfolio effect lead to reported sales decreasing by 11% and totaling $5.2 billion. FX had a similar dilutive effect on EBITDA as on sales. Accordingly, reported EBITDA pre of 1.4 billion was down by 20%. EPS pre of 2.07 was down 23% year on year. Healthcare has been once again the best performer delivering 7% organic sales growth And this is driven by our Wave 1 product launches, in particular Vavensio, and also related to the growth of the fertility franchise. Our oncology franchise performed strongly, also supported by Herbitux in Q3. Life science registered an 8% decline in the core business, mainly in relation to these stocking-in-process solutions for which we saw the trap in Q3 as we communicated before. This was amid a softer market environment in China and a major SAP migration project which turned out to be complex, affecting mainly SLS. Against the backdrop of a continuing decline in the COVID-19 business, Total sales in life science were down 13% organically in Q3. This decline also had a negative effect on the EBITDA pre-margin in life science and consequently that of the group. In electronics, display solutions increased by 12% organically in relation to a recovery in liquid crystals materials volumes against easy comparables in 2022, partially offsetting a decline in semiconductor solutions, which decreased by 9% organically, continuously outperforming the growth of the semiconductors market. Overall, organic sales were down 4% in electronics in the quarter. While the temporary challenges for life science and electronics persisted in Q3, healthcare performs very strongly. Therefore, our multi-industry business model continues to demonstrate resilience through this transitional year, 2023. I'm therefore pleased to say that we are living at our absolute sales and earnings target corridors for 2023 and change, using the full flexibility of our guidance. We have added more color in order to reflect the developments in the business sectors and to provide more transparency to all of you as we are heading towards the end of the year. We continue to expect net sales in a range of 20.5 billion to 21.9 billion, trending slightly below the midpoint. We are also leaving our guidance ranges for EBITDA-free 5.8 billion to 6.4 billion, and for EPS-free of 8.25 to 9.35 and change. On our target earning corridors, we expect to trend in the lower half of the ranges, and I will provide more details on our assumptions later in the presentation. Turning to slide number six, For an overview of our performance by business sectors, you can see that healthcare contributed strongly to the organic development of sales in Q3, and healthcare was able to partially offset the declines that we have seen in life science and electronics. Our key growth engines in the quarter were our oncology franchise, including both Bavencio and Herbitux, and the fertility franchise within our healthcare business sectors, but also display solutions within electronics, which benefited from a volume recovery in liquid crystal materials. Taking a closer look at the business sectors, healthcare showed strong organic growth of 7%, mainly driven by 13% growth from Wave 1 launches, in particular Babencio, which was up by 22%. From a franchise perspective, oncology was the highlight, with organic growth of almost 18%, driven by Bavencio, paired with a strong performance of Herbitux, particularly in China. That was followed by fertility, with organic growth of 14.14%. Life science was down 8% in the core business in Q3 on the pronounced stocking in process solutions, immediate softer market environment in China, and the major SAP migration project, as I mentioned before, mainly affecting science and lab solutions. As expected, COVID sales continued to be highly dilutive to our growth and were significantly down both year on year and sequentially. This resulted in sales decreasing 13% organically in life science in Q3. On China, I would like to say that our exposure is lower than that of our major life science peers. In electronics, our semi-business continued to outperform a declining market. As the business environment continued to be challenging in Q3 as expected, our semiconductor sales declined by 9% organically in Q3. The display solutions performed strongly with organic growth of 12% thanks to a recovery of volumes in liquid crystal materials, partially compensating for the performance of semiconductor solutions in Q3. Overall, sales in electronics declined by 4% organically in Q3. FX served as a headwind across the board on sales, with the strongest effect on healthcare and on electronics. Regarding earnings, EBITDA pre came in at 1.45 billion, down organically by 13%. And this was mainly due to life science, where the organic EBITDA pre was down by 32% in Q3 on underutilization and associated idle costs resulting from lower volumes in process solutions. EBITDA pre in healthcare was up strongly, again at 17% organically versus last year in Q3, mainly driven by a very good cost consciousness, so lower SG&A, which also reflects the new AVENCIO deal structure with Pfizer, as well as lower R&D costs due to our focused leadership approach. Evita Pre in electronics was down 18% organically in Q3, mainly reflecting lower volumes in semiconductor materials during the downturn in the semiconductors industry, having resulted as well in underutilization and associated idle costs, as we mentioned, for life science. The currency was a slightly lower headwind on Evita Pre than on sales for the group, Looking at the business sectors, FX was more of a headwind on EBITDA-PRI for self-care and electronics with less impact on life science. And this was balanced by hedging gains in our corporate and other segments. Moving to the regional view on slide number seven, In Q3, our three larger regions were down organically. North America declined by 8.7%, while Europe was down 6.8% organically, both mainly in relation to the drop in life science sales. APAC was down by 2.6% organically in Q3, mainly due to electronics, but also life science. Q3 once again demonstrated the benefits of our globally diversified business setup with the geographical diversification adding to our resilience of our tool. The smallest regions, Latam, grew strongly at 21 organically, mainly thanks to healthcare, with Middle East and Africa declining slightly by minus 1%, mainly due to life science. And with this, I'm going to hand it over to Helene for additional details on our Q3 financial results.