Merck Kgaa

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

Thank you very much, Heidi, and a very warm welcome to this Merck Full Year 2023 Results Call. My name is Konstantin Fest, I'm Head of Investor Relations here at Merck, and I'm delighted to be joined today by Belen Garrillo, CEO of the group, as well as Helene von Röder, CFO of the group. Also for the Q&A part of this call, we'll be joined by Matthias Heinze, CEO Life Science, Peter Günther, CEO Healthcare, as well as Kai Beckmann, CEO of Electronics. the next couple of minutes we would like to run you through the key slides of this presentation and after that we are happy to take all of your questions in the q a with if i'd like to directly hand over to belen to kick off the presentation over to you thank you constantine and welcome everybody to our full year 2023 earnings call i am on a slide number five

of the presentation and would like to start with some key messages for 2023. First of all, we have landed as expected and delivered on our guidance. Not only that, but we have also delivered to market expectations for fiscal year 2023. I hope you will agree with me that we were confronted with major market headwinds and have operated our business in a very, very challenging environment. In that context, we have shown great resilience with a strong support from our multi-industry business models. As we already mentioned during our Q3 earnings call, the scale with opportunities on one side and the challenges on the other side was tilting more towards the challenges. So we have met our guidance corridors for net sales, EBITDA-free and EPS-free, And this is not only good news, but it reflects our great anticipation of the way the business environment was going to be moving in 2023, but also a very disciplined execution of our plans. Now let's move to the highlights for 2023 in the next slide, slide number six. The strong performance of healthcare partially compensated for the challenges that we had for life science and electronics. Organically, our group sales were down by 2% and Evita pre-declined by 9%. Healthcare was once again the best performer with 9% organic sales growth. This was driven by both our Wave 1 launches, in particular Babencio and Maven Clark, and our fertility franchise. Life science recorded a 2% decline in the core business, driven by continued customer stocking in process solution and a deteriorating macroeconomic environment in China amid a complex SAP migration situation. which impact we already discussed with you in Q3 last year. Against the backdrop of a sharp decline in the COVID-19 business, total sales in life science were down by 8% organically in 2023. This decline also had a negative effect on the EBITDA pre-margin in life science and consequently that of the group. Sales in electronics were down by 5% organically due to the prolonged well-known down cycle in the semiconductors market. All that together with significant currency headwinds and a very small portfolio effect, sales declined by 1.2 billion year on year to 21 billion. while EBITDA pre came in at the 5.9 billion. Once again, within our guidance corridors. Moving on to slide number seven to show you the proposed dividend. As communicated in our press release this morning, we will propose a dividend of 2.20 per share to the General Assembly on April 28th. As you see, this is stable versus last year, speaking of the great confidence that we have on the long-term growth of our business. While it is part of our policy that the current dividend constitutes the minimum level, this assumes a stable economic environment. And as I just laid out, our businesses were confronted with major headwinds and operated in a very challenging environment. Once again, in keeping our dividend stable, we signal strong confidence in our future growth. Let me now provide a bit more color on 2023 on a business-by-business basis, starting with life science on slide number nine. Life science had a transitional year where sales were down by 2% organically in the core. while COVID-related sales declined as anticipated with an additional dampening effect of minus 6%. Therefore, total sales in life science declined by 8% organically. In line with our guidance, COVID-related sales fell from around 800 in 2022 to around 250 million in 2023. Process solution decreased by 8%, mainly contributing to the organic sales decline in the core. Turning to profitability, the EBITDA pre-margin was down to 30%. from a high 36.2% last year, mainly driven by lower volumes and negative mixed effects, mainly due to the decline of the COVID-related sales, which you may remember were highly profitable. Our focus in life science is very clear. We aim to return to growth during 2024 while leveraging our innovative portfolio across our three business units within life science. Process Solutions is a key enabler of next-generation maps manufacturing and the production of novel modalities. Here, we can leverage our know-how to drive life science services in parallel. We bring new solutions to the market, taking a very active role in the era of digitalization of labs and research. In summary, 2023 was a transitional year for life science with significant market hedge wins from non-repeating COVID-related sales coupled with pronounced customer stocking. While book-to-bill was below 1 throughout 2023, it was trending in the right direction in the second half. Underlying market fundamentals remain attractive beyond temporary developments, and we have a strong confidence in the mid-term growth prospects for our business in life science. Moving into healthcare, slide number 10. Sales went up by 8.5% organically, and the EBITDA pre-margin has remained stable at 31.6%. Regarding EBITDA pre, positive effects from stringent cost management and half a year of full Babencio profit repatriation were masked by additional pre-launch costs, and the Evobrutinib termination provision of a high double-digit million amount that Helene will confirm later. Growth in healthcare was driven by our oncology portfolio, which delivered organic growth of 17%, fueled by the continued ramp-up of Babencio as well as Erbitox. Our NNI portfolio, neurology and immunology, remained organically stable with a strong performance of Mavenclad, especially in the U.S., offsetting the expected rebate decline. Our fertility franchise grew by 15% organically due to a strong underlying growth, which was amplified by competitors' stockouts. From a strategic perspective, we are confident that our focused leadership approach is solid and provides a promising basis for long-term growth. While the failure of EVO was no doubt a disappointment, our pipeline continues to have significant potential. In all stages of development, we have compounds with novel mechanisms that could redefine the standard of care in key therapeutic areas like oncology or immunology. Development of CevinaPan is going on. As you know, CevinaPan is our latest stage blockbuster candidate in Cell and Net. And the next step is the interim analysis of the three links study. the Phase III study in unresectable patients who are eligible for treatment with cisplatin. Our TLR7-8 inhibitor Empathoran has reached an important milestone in 2023 by completing the futility analysis in our Phase II program in systemic and in cutaneous lupus. We signed new collaborations and license agreement to increase the optionality of our pipeline. And all in all, we feel pretty solid and good about our positioning in healthcare despite the setback with the . We will remain focused on stringent execution of our strategy to both drive our existing product portfolio and to continue to increase optionality for our pipeline. Moving into electronics and slide number 11, organically sales fell by 5% in 2023, while EBITDA pre-decline by 17%. Our semi-solution business was down 4% organically, yet outperforming the market. Our display solution business saw a sales decline of 9% organically. And this was mainly due to volume losses against high comparables from H1 2022 and price reductions in liquid crystals. Surface solution was down by 4% due to volume declines in automotive coating and industrial pigment demand. The EBITDA pre-margin of electronics landed at 25% with some headwinds from currency. The sales decline in semiconductor solutions driven by semiconductors materials led to underutilization costs and negative mix effects. Display solution experienced increasing price pressure mainly in the liquid crystal business. This affects cost and adverse underlying margin development. Obviously, in this context, we have to take some cost actions to mitigate the impact of this effect on profitability while enabling continued investment in key growth areas. We see in electronics excellent long-term growth prospects. Structural growth drivers such as artificial intelligence, high performance computing, and Internet of Things all demand more materials solution and cutting-edge innovation for the next generation of chips. Our semiconductor materials business delivered two quarters of sequential growth in the second half of 2023. We have also seen the first positive signals in the market Chip inventories are being reduced. Chip pricing is recovering, and we observed an early cycle recovery in leading-edge memory and logic chips. We anticipate sequential quarterly growth across 2024, with H2 expected stronger than H1. To sum up, 2023 was also challenging for electronics due to the prolonged down cycle in the semiconductors market. However, we are convinced that we will emerge stronger from this transitional year. And with that, let me hand it over to Helene for a more detailed review of our financials.