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Merck KGaA Interim / Quarterly Report 2020
53245_10-q_2020-05-19_43122511-8e16-4ebe-b35a-cc1c267635a8.pdf
Interim / Quarterly Report
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Merck
QUARTERLY STATEMENT
1ST QUARTER
2020
Quarterly Statement as of March 31, 2020 _ Table of Contents
Table of Contents
03 Merck – In brief
04 Developments within the Group and R&D
09 Course of Business and Economic Position
09 Merck
16 Healthcare
20 Life Science
23 Performance Materials
27 Corporate and Other
28 Outlook
33 Supplemental Financial Information
34 Consolidated Income Statement
35 Statement of Comprehensive Income
36 Consolidated Balance Sheet
37 Consolidated Cash Flow Statement
38 Consolidated Statement of Changes in Net Equity
40 Information by Business Sector
43 Significant events during the reporting period
44 Subsequent events
45 Effects of disclosure changes
46 Financial Calendar
This document is a quarterly statement pursuant to section 53 of the Exchange Rules for the Frankfurt Stock Exchange.
This quarterly statement contains certain financial indicators such as operating result (EBIT), EBITDA, EBITDA pre, business free cash flow (BFCF), free cash flow, net financial debt and earnings per share pre, which are not defined by International Financial Reporting Standards (IFRS). These financial indicators should not be taken into account in order to assess the performance of Merck in isolation or used as an alternative to the financial indicators presented in the consolidated financial statements and determined in accordance with IFRS.
The figures presented in this quarterly statement have been rounded. This may lead to individual values not adding up to the totals presented.
The Annual Report for 2019 has been optimized for mobile devices and is available on the Web at ar.merckgroup.com/2019/.
Quarterly Statement as of March 31, 2020 ____ Merck - In brief
Merck - In brief
MERCK GROUP
Key figures
| € million | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Net sales | 4,370 | 3,746 | 16.7% |
| Operating result (EBIT)¹ | 716 | 379 | 89.0% |
| Margin (% of net sales)¹ | 16.4% | 10.1% | |
| EBITDA² | 1,148 | 853 | 34.6% |
| Margin (% of net sales)¹ | 26.3% | 22.8% | |
| EBITDA pre | 1,181 | 929 | 27.2% |
| Margin (% of net sales)¹ | 27.0% | 24.8% | |
| Profit after tax | 458 | 190 | > 100.0% |
| Earnings per share (€) | 1.05 | 0.43 | > 100.0% |
| Earnings per share pre (€)¹ | 1.50 | 1.13 | 32.7% |
| Business free cash flow¹ | 661 | 545 | 21.4% |
¹ Not defined by International Financial Reporting Standards (IFRS).
MERCK GROUP
Net sales by quarter
€ million
MERCK GROUP
EBITDA pre¹ by quarter
€ million
¹ Not defined by International Financial Reporting Standards (IFRS).
Quarterly Statement as of March 31, 2020 Developments within the Group and R&D
Developments within the Group and R&D
Merck
Summary of the first quarter of 2020
We are Merck, a vibrant science and technology company. Science is at the heart of everything we do. It drives the discoveries we make and the technologies we create. Our work makes a positive difference to millions of people's lives every day.
In Healthcare, we discover unique ways to treat the most challenging diseases such as multiple sclerosis and cancer.
Our Life Science experts empower scientists by developing tools and solutions that help deliver breakthroughs more quickly.
And in Performance Materials, we develop science that sits inside technologies and changes the way we access and display information.
Everything we do is fueled by a belief in science and technology as a force for good. A belief that has driven our work since 1668, and will continue to inspire us to find more joyful and sustainable ways to live. We are curious minds dedicated to human progress. We hold the global rights to the Merck name and brand. The only exceptions are Canada and the United States. In these countries, we operate as EMD Serono in the Biopharma business, as MilliporeSigma in the Life Science business and as EMD Performance Materials in the high-tech materials business.
We had 57,451 employees worldwide on March 31, 2020, compared with 52,140 employees on March 31, 2019.
This section of the present quarterly statement summarizes the highlights of the first quarter of 2020 at Merck including those in research in development. A detailed description of Merck and its business sectors can be found in our Annual Report for 2019. https://www.merckgroup.com/en/annualreport/2019.
Healthcare
BIOPHARMA
Oncology and Immuno-Oncology
- On January 6, we and our alliance partner Pfizer Inc. reported that the Phase III JAVELIN Bladder 100 study met its primary endpoint of overall survival (OS) at the planned interim analysis. In this study, patients with previously untreated locally advanced or metastatic urothelial carcinoma whose disease did not progress on induction chemotherapy and who were randomized to receive first-line maintenance therapy with Bavencio® (avelumab) and best supportive care (BSC) lived significantly longer than those who received BSC only. A statistically significant improvement in OS was demonstrated in the avelumab group in each of the co-primary populations: all randomized patients and patients with PD-L1-positive tumors. The safety profile for avelumab in the trial was consistent with that in the JAVELIN monotherapy clinical development program. The results of the study will be submitted for presentation at an upcoming medical
MERCK GROUP
Net sales by business sector - Q1 2020
€ million/in % of net sales
MERCK GROUP
EBITDA pre¹ by business sector² - Q1 2020
€ million/in %
¹ Not defined by International Financial Reporting Standards (IFRS).
² Not presented: Decline in Group EBITDA pre by € -129 million due to Corporate and Other.
Quarterly Statement as of March 31, 2020 Developments within the Group and R&D
congress and shared with the U.S. Food and Drug Administration (FDA) and other health authorities.
-
On March 2, Erbitux® (cetuximab) was granted approval by the National Medical Products Administration (NMPA) of China for the first-line treatment of patients with recurrent and/or metastatic squamous cell carcinoma of the head and neck (SCCHN) in combination with platinum-based therapy plus fluorouracil. Evidence from the pivotal Phase III CHANGE II study, on which the approval is based, shows the efficacy and safety of the EXTREME regimen (cetuximab + cisplatin + 5-FU, followed by cetuximab maintenance) versus platinum-based chemotherapy (cisplatin + 5-FU) alone for first-line treatment in Chinese patients with recurrent and/or metastatic SCCHN. The data showed that the addition of cetuximab to platinum-based chemotherapy improved progression-free survival (PFS), OS and overall response rate (ORR), confirming the relevance of the EXTREME regimen specifically in this patient population.
-
On March 13, we and our alliance partner Pfizer Inc. provided an update from the Phase III JAVELIN Head and Neck 100 study evaluating Bavencio® in addition to chemoradiotherapy (CRT) versus standard-of-care CRT in patients with untreated locally advanced SCCHN. The alliance accepted the recommendation of the independent Data Monitoring Committee to terminate the JAVELIN Head and Neck 100 trial, as the study was unlikely to show a statistically significant improvement in the primary endpoint of PFS based on a preplanned interim analysis. A detailed analysis of the Phase III JAVELIN Head and Neck 100 study is being conducted and study findings will be shared with the scientific community.
-
On March 13, we announced that we and our alliance partner GlaxoSmithKline decided to proactively amend the protocol of the bintrafusp alfa INTR@PID Lung 037 study versus pembrolizumab. The changes include:
-
an adaptive trial design based on pre-specified rules to determine whether to expand to Phase III or stay as Phase II
- a change to study endpoints from ORR/PFS to PFS/OS, thus confirming the registrational intent and incorporating the guidance from health authorities
These changes were not data-driven as no results were available for the 037 study at the time.
Bintrafusp alfa is being studied in a variety of solid tumors, including non-small cell lung cancer (NSCLC) (INTR@PID LUNG 005, INTR@PID LUNG 024, INTR@PID LUNG 037) and biliary tract cancer (BTC) (INTR@PID BTC 055, INTR@PID BTC 047). In the first quarter of 2020, we initiated a new clinical study for an HPV-associated tumor, cervical cancer (INTR@PID CERVICAL 017). Additional studies are in planning and will be communicated in the coming months. In December 2018, bintrafusp alfa was granted orphan drug designation by both the FDA as well as the European Medicines Agency in BTC.
- On March 25, we announced that the Japanese Ministry of Health, Labour and Welfare (MHLW) approved Tepmetko® (tepotinib) for the treatment of patients with unresectable, advanced or recurrent NSCLC with MET exon 14 (METex14) skipping alterations. Tepmetko® is administered at a dose of 500 mg once daily as two 250 mg tablets. This is the first regulatory approval globally for an oral MET inhibitor indicated for the treatment of advanced NSCLC harboring MET gene alterations. Tepotinib was previously granted SAKIGAKE "fast-track" designation and orphan drug designation by the MHLW. The approval of Tepmetko® in Japan is supported by data from 99 patients with NSCLC with METex14 skipping alterations enrolled in the ongoing single-arm Phase II VISION study. In September 2019, the FDA granted Breakthrough Therapy designation for tepotinib in patients with metastatic NSCLC harboring METex14 skipping alterations who progressed following platinum-based cancer therapy. We intend to file tepotinib for regulatory review with the FDA in 2020.
Neurology and Immunology
- On February 20, we communicated our decision to change the comparator in our Phase III studies of evobrutinib to Aubagio (EVOLUTION RMS 1 and 2). Evobrutinib is an oral, highly selective Bruton's tyrosine kinase inhibitor being investigated in adult patients with relapsing multiple sclerosis (MS). Evobrutinib was developed in our own laboratories
MERCK GROUP
Business free cash flow by business sector² - Q1 2020 € million/in %
MERCK GROUP
Employees by region as of March 31, 2020 Number/in%
¹ Not defined by International Financial Reporting Standards (IFRS).
² Not presented: Decline in Group business free cash flow by € -146 million due to Corporate and Other.
Quarterly Statement as of March 31, 2020 _____ Developments within the Group and R&D
and demonstrates our commitment to improving the lives of people with MS and other chronic progressive diseases.
- On March 19, we announced that as part of the global effort to investigate potential therapeutics for Covid-19 and our support of independent research, we donated a supply of interferon beta-1a (Rebif®) to the French Institut National de la Santé et de la Recherche Médicale (INSERM) following a request for use in a clinical trial (DISCOVERY). The trial is sponsored by INSERM and its launch was announced by the French Health authorities on March 11. To date, our interferon beta-1a has not been approved by any regulatory authority for the treatment of Covid-19 or for use as an antiviral agent.
- During the first quarter, we continued to gain regulatory approvals for our oral MS medicine Mavenclad® (cladribine tablets), including in Morocco, Thailand, Oman, Russia, and Macau. These approvals of Mavenclad® follow its approvals in more than 70 other countries, including the United States in March 2019 and the 28 countries of the European Union including the United Kingdom, as well as in Norway, Liechtenstein and Iceland in August 2017.
General Medicine and Endocrinology
- Glucophage®, containing the active ingredient metformin, is now approved in 56 countries for prediabetes when lifestyle intervention is not enough to control the condition.
- In early 2020, the number of new patients using the Easypod® electromechanical injection device for treatment with Saizen® (somatropin) continued to grow, bringing the total number of patients enrolled on Easypod® Connect to almost 21,000. In addition to that, an innovative mobile app called Easypod® AR was launched in Taiwan and Hong Kong, with global rollout to additional markets planned during 2020 and 2021. Easypod® AR uses augmented reality technology to support patients learning how to operate the Easypod® device, offering an innovative, interactive and engaging learning experience. Saizen® is our main endocrinology product and is indicated for the treatment of growth hormone deficiency in children and adults.
Fertility
- To date, an estimated 3.6 million babies have been born with the help of our Fertility portfolio.
-
On January 22, we reported that the European Commission granted marketing authorization for our new Gonal-f (folli-tropin alfa) 150 IU pen injection device. This means we now offer an even more comprehensive range of best-in-class pens, supporting patients from the beginning to the end of their fertility stimulation cycle, when lower doses are required.
-
The successful global launches of our Pergoveris® Pen continued in early 2020 with Indonesia, Panama and Slovakia, so that patients in 27 countries now have access to this convenient and ready-to-use fertility combination treatment option for women with severe follicle-stimulating hormone and luteinizing hormone deficiency. Additional launches in other countries are planned.
ALLERGOPHARMA
- On February 19, we signed an agreement to sell our allergy business Allergopharma to Dermapharm Holding SE ("Dermapharm"). The transaction closed on March 31. By divesting Allergopharma, we are further sharpening the focus of the Healthcare business sector on the development of innovative medicines for difficult-to-treat diseases. The divestment to Dermapharm will sustainably strengthen the business of Allergopharma, a leader in allergen-specific immunotherapy of type 1 allergies such as hay fever or allergic asthma. Allergopharma products are available in 18 countries worldwide.
Life Science
- In the first quarter of 2020, we continued to focus on meeting customer needs by launching more than 4,000 products across the Research Solutions, Process Solutions and Applied Solutions business units, including those launched through our "faucet program" for antibodies, reference materials, chemicals and nanomaterials.
- In January, we opened a non-profit, high-tech skill development center in collaboration with the Council of Scientific and Industrial Research's Institute of Microbial Technology (CSIR-IMTECH), an organization under the government of India's Ministry of Science and Technology. Located in Chandigarh, India, the center is equipped with genome-editing, single-molecule biomarker detection and other technologies to help local students build life science skills.
- In February, we introduced the BrightLab™ platform, our cloud-based software solution bringing inventory management and instrument connectivity functionalities to research scientists. The tool brings Internet of Things (IoT) integrations to R&D, meeting an increasing demand for data automation and accessible, real-time monitoring of centralized and synched lab data.
- Also in February, we announced that our business was selected by Elypta, a molecular diagnostics firm in Sweden, as the contract manufacturer for their Research Use Only (RUO) clinical diagnostic liquid biopsy kits. Once validated and commercialized, the kits will be intended to improve the
Quarterly Statement as of March 31, 2020 Developments within the Group and R&D
accuracy of cancer diagnoses by analyzing metabolites deregulated in several cancer types. The kits will be manufactured at the Life Science facility in St. Louis, Missouri, USA.
- In addition, we announced a global licensing agreement with ReForm Biologics, a pharmaceutical technology company in Woburn, Massachusetts, USA, for excipient development and commercialization. The collaboration will accelerate R&D activities and GMP manufacturing for ReForm's excipients, making them available to our customers for use in biologic formulations.
- In March, we launched the LANEXO™ system for lab inventory, safety and compliance management. This first-to-market digital lab informatics solution offers radio-frequency identification (RFID) labels, cloud-based integration, mobile and web applications for easily accessible digital data capture and real-time documentation.
- As part of our response to the Covid-19 pandemic, in March, we launched a dedicated Covid-19 webpage on our e-Commerce platform, providing a one-stop-shop of approximately 200 products and corresponding information for academic labs and biopharmaceutical companies working to combat the virus. This consolidated offering of our products, services and necessary raw materials empowers scientists and researchers to detect and characterize viruses and to develop vaccines and therapies.
Performance Materials
- Our Performance Materials business sector comprises the specialty chemicals business of Merck and consists of three business units: Semiconductor Solutions, Display Solutions and Surface Solutions.
- We are well on track in the execution of our five-year Bright Future transformation program announced in 2018, with which we are adapting to new market realities and customer requirements.
- With the completion of the acquisitions of Intermolecular and Versum Materials, we reached two major milestones on our Bright Future journey to transform Performance Materials into a strong solutions provider and leading player in the electronic materials market. We are making good progress with the integration, ensuring a seamless transition and business continuity.
Semiconductor Solutions
- Semiconductor Solutions is the largest business within Performance Materials. It consists of two dedicated units: Delivery Systems & Services as well as Semiconductor Materials. Our Semiconductor Materials unit supplies products for every major step in the wafer manufacturing process – including doping, lithography, patterning, deposition, planarization, etching, and cleaning. Specialty cleans, photoresists and conductive pastes for semiconductor packaging round off the portfolio.
- Delivery Systems & Services (DS&S) develops and deploys equipment that enables our Semiconductor Materials business to manage safe and reliable delivery of hazardous materials to our customers. This unit also supports the installation of our equipment and the safe handling of our materials through MEGASYS® Gas and Chemical Services, which celebrated 30 years in business last year.
- DS&S launched two new models within our CHEMGUARD family, which are high purity, liquid delivery systems. These newest product offerings enable and align with our thin film molecules. The CHEMGUARD CG600 is developed for primarily handling our product TDMAT (TetrakisDiMethylAmino-Titanium), which is enjoying wider adoption in high volume manufacturing (HVM) with increased volumes. The CG600 integrates our innovative delivery system into bulk applications to ensure low vapor pressure, highly reactive molecule integrity during cannister changes, without the use of heat or solvent. The CHEMGUARD CG350 has been adopted in some of the latest advanced chemical vapor deposition (CVD) applications, which utilizes increasingly challenging molecules that DS&S delivers.
- In Semiconductor Materials, our thin film solutions business continues to make progress in all our technology platforms - organosilanes, organometallics and liquid phase silicon formulations for processes with low resistance and improved dielectric characteristics for faster or better processors, servers and data storage density.
- Our planarization business developed new products in dielectric polishing and copper metal polishing for advanced logic and memory. The new products have been a key accelerator to sustain momentum in the market through continued innovation and improving defect reduction.
- In the photoresists business we are continuously developing new products to address the needs of the growing market, e.g. for 3D NAND, sensors and radio frequency filters. Furthermore, customer interest in directed self-assembly technology remains strong.
- In the 5G space, our Transient Liquid Phase Sintering (TLPS) conductive pastes are enabling high-yield production of advanced antenna applications. Our mid- to back-end photolithography resist materials used in electronic packaging applications continue to drive miniaturization and heterogeneous integration for small-form factor devices.
- Intermolecular, our R&D services offering, achieved significant breakthroughs in Ovonic Threshold Switch selectors,
Quarterly Statement as of March 31, 2020 Developments within the Group and R&D
which are crucial for the development of next-generation 3D Phase Change Memories, a key memory technology. We are currently working with our partners to develop the materials and integration processes required for their commercial introduction.
Display Solutions
- Our Display Solutions business unit consists of our Liquid Crystals, Organic Light-Emitting Diodes (OLED), Photoresists, and Liquid Crystal Windows businesses.
- In Liquid Crystals, we are facing a declining market as expected. Our newest materials are helping us maintain our position as the technology leader. With our XtraBright™ products, we were able to win new projects for large area displays as well as high-resolution mobile devices.
- With our OLED materials, the business unit is contributing to the fast-growing market of flexible displays, which includes foldable smartphones and rollable TVs. Our OLED materials have qualified in all upcoming free form display based products that will enter the market this year.
- Our Photoresist materials are also contributing to the flexible displays market. Our low-temperature processable positive tone photoresists are widely used to pattern on-cell touch sensors. These sensors enable a thinner display structure which is crucial for foldable devices.
- For Liquid Crystal Window modules, we successfully completed the installation phase of two architectural lighthouse projects: one with crane manufacturer Kirow in Leipzig, Germany; and another project with consulting, controlling and planning company FC Group in Karlsruhe, Germany.
Surface Solutions
- The core markets for Surface Solutions are automotive coatings, cosmetics, and, to a smaller extent, industrials. We are serving them with functional and decorative solutions. Our focus is on expanding our portfolio through innovation in all areas.
- For the automotive market, we continue to expand our capabilities for silica flake production with the focus on Colorstream® Lava Red, which offers both chromatic effects and high hiding power. Another focus is on promoting the intense sparkle effects that our Xirallic® NXT pigments Amur Black and Tigris Blue can achieve in automotive stylings.
- We have launched several new laser additives under the brand name Iriotec® as well as a new high luster pigment Biflair® 81 which offers unique brilliancy in printing applications.
- In the area of cosmetics, we have completed our Ronastar® Lights series with two further elements to achieve unique sparkle effects. Ronacare® Balmance is a new active ingredient addressing the claims of anti-itching, redness reduction and soothing, which can be, for example, of particular importance for users of face masks.
- In response to the postponement of the industry fair "in-cosmetics," we launched the "Live Cosmetics Conference" as an online alternative to our physical appearance at the exhibition. The two-day web-based event attracted more than 2,200 participants to interact with our experts and learn about new products and industry trends.
Quarterly Statement as of March 31, 2020 Course of Business and Economic Position Merck
Course of Business and Economic Position
Merck
Overview – Q1 2020
- All business sectors contribute to double-digit increase (16.7%) in Group sales to € 4,370 million
-
Group net sales show organic growth of 7.6%, insignificantly supported by positive exchange rate effects (0.6%)
-
Group EBITDA pre up by 27.2% to € 1,181 million; EBITDA pre margin improves to 27.0% (Q1 2019: 24.8%)
- Net financial debt amounts to € 12.3 billion on March 31, 2020 (December 31, 2019: € 12.4 billion)
MERCK GROUP
Key figures
| € million | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Net sales | 4,370 | 3,746 | 16.7% |
| Operating result (EBIT)¹ | 716 | 379 | 89.0% |
| Margin (% of net sales)¹ | 16.4% | 10.1% | |
| EBITDA² | 1,148 | 853 | 34.6% |
| Margin (% of net sales)¹ | 26.3% | 22.8% | |
| EBITDA pre | 1,181 | 929 | 27.2% |
| Margin (% of net sales)¹ | 27.0% | 24.8% | |
| Profit after tax | 458 | 190 | > 100.0% |
| Earnings per share (€) | 1.05 | 0.43 | > 100.0% |
| Earnings per share pre (€)¹ | 1.50 | 1.13 | 32.7% |
| Business free cash flow¹ | 661 | 545 | 21.4% |
¹ Not defined by International Financial Reporting Standards (IFRSs).
DEVELOPMENT OF NET SALES AND RESULTS OF OPERATIONS
In the first quarter of 2020, the Merck Group generated net sales of € 4,370 million (Q1 2019: € 3,746 million). This represented a year-on-year increase of around € 624 million or 16.7%. Organic sales growth for the Group amounted to € 286 million or 7.6% in the first quarter of 2020. While the two top-selling business sectors Life Science and Healthcare generated organic sales increases of 5.6% and 15.3%, respectively, Performance Materials saw an organic sales decline of -5.4%. At 0.6%, the impact of foreign exchange on Group sales was insignificant. Portfolio changes increased Group net sales by € 315 million or 8.4%. This primary stemmed from the acquisition of Versum
Materials, Inc., USA, (Versum), which closed on October 7, 2019, as well as the acquisition of Intermolecular, Inc., USA, (Intermolecular), which closed on September 20, 2019. Both businesses are now part of the Semiconductor Solutions business unit of our Performance Materials business sector.
In the first quarter of 2020, all business sectors increased net sales in comparison with the year-earlier quarter. In the first quarter of 2020, the Healthcare business sector generated a double-digit sales increase of 14.9% to € 1,701 million (Q1 2019: € 1,481 million), which was mainly due to organic sales growth (15.3%). Healthcare's share of Group net sales declined slightly to 39% (Q1 2019: 40%). In the first quarter of 2020, net sales of the Life Science business sector increased by
Quarterly Statement as of March 31, 2020 Course of Business and Economic Position Merck
6.5% to € 1,769 million (Q1 2019: € 1,661 million). Accounting for a 40% (Q1 2019: 44%) share of Group net sales in the first quarter of 2020, Life Science was the Group's largest business sector in terms of sales. Net sales of the Performance Materials business sector increased by 49.0% to € 900 million
(Q1 2019: € 604 million) owing to the successful acquisitions of Versum and Intermolecular. The percentage contribution of the Performance Materials business sector to Group net sales correspondingly rose by five percentage points to 21% (Q1 2019: 16%).
MERCK GROUP
Net sales by business sector
| € million | Q1 2020 | Share | Organic growth1 | Exchange rate effects | Acquisitions/ divestments | Total change | Q1 2019 | Share |
|---|---|---|---|---|---|---|---|---|
| Healthcare | 1,701 | 39% | 15.3% | -0.4% | - | 14.9% | 1,481 | 40% |
| Life Science | 1,769 | 40% | 5.6% | 0.9% | - | 6.5% | 1,661 | 44% |
| Performance Materials | 900 | 21% | -5.4% | 2.4% | 52.1% | 49.0% | 604 | 16% |
| Merck Group | 4,370 | 100% | 7.6% | 0.6% | 8.4% | 16.7% | 3,746 | 100% |
1 Not defined by International Financial Reporting Standards (IFRSs).
In the first quarter of 2020, the regional sales development of the Merck Group was as follows:
MERCK GROUP
Net sales by region
| € million | Q1 2020 | Share | Organic growth1 | Exchange rate effects | Acquisitions/ divestments | Total change | Q1 2019 | Share |
|---|---|---|---|---|---|---|---|---|
| Europe | 1,310 | 30% | 9.7% | 0.3% | 1.4% | 11.3% | 1,177 | 32% |
| North America | 1,150 | 26% | 12.0% | 3.2% | 7.9% | 23.1% | 934 | 25% |
| Asia-Pacific (APAC) | 1,536 | 35% | 1.2% | 1.3% | 16.9% | 19.4% | 1,287 | 34% |
| Latin America | 252 | 6% | 21.6% | -12.4% | 0.2% | 9.4% | 230 | 6% |
| Middle East and Africa (MEA) | 121 | 3% | -4.0% | 1.1% | 5.9% | 3.0% | 118 | 3% |
| Merck Group | 4,370 | 100% | 7.6% | 0.6% | 8.4% | 16.7% | 3,746 | 100% |
1 Not defined by International Financial Reporting Standards (IFRSs).
Quarterly Statement as of March 31, 2020 Course of Business and Economic Position Merck
The consolidated income statement of the Merck Group is as follows:
MERCK GROUP
Consolidated Income Statement
| € million | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Net sales | 4,370 | 3,746 | 16.7% |
| Cost of sales | -1,654 | -1,384 | 19.5% |
| Gross profit | 2,716 | 2,362 | 15.0% |
| Marketing and selling expenses | -1,059 | -1,091 | -2.9% |
| Administration expenses | -289 | -283 | 1.9% |
| Research and development costs | -579 | -527 | 10.0% |
| Impairment losses and reversals of impairment losses on financial assets (net) | 6 | -4 | >100.0% |
| Other operating expenses and income | -80 | -79 | 0.9% |
| Operating result (EBIT)1 | 716 | 379 | 89.0% |
| Financial result | -98 | -113 | -12.5% |
| Profit before income tax | 617 | 266 | >100.0% |
| Income tax | -159 | -67 | >100.0% |
| Profit after tax from continuing operations | 458 | 199 | >100.0% |
| Profit after tax from discontinued operation | - | -10 | - |
| Profit after tax | 458 | 190 | >100.0% |
| Non-controlling interests | -2 | -1 | 99.8% |
| Net income | 456 | 189 | >100.0% |
1 Not defined by International Financial Reporting Standards (IFRSs).
In the first quarter of 2020, the positive development of Group sales led to an increase of 15.0% in gross profit to € 2,716 million (Q1 2019: € 2,362 million). The resulting gross margin of the Group, i.e. gross profit as a percentage of sales, slipped slightly to 62.2% (Q1 2019: 63.1%).
The 10.0% increase in research and development costs to € 579 million (Q1 2019: € 527 million) was due mainly to the Healthcare business sector. In the first quarter of 2020, the Group research spending ratio (research and development costs as a percentage of net sales) was 13.3% (Q1 2019: 14.1%). Accounting for a 74% (Q1 2019: 74%) share of research and development expenses of all business sectors, Healthcare is the most research-intensive business sector of Merck.
The 89.0% increase in the operating result (EBIT) to € 716 million (Q1 2019: € 379 million) was due mainly to the positive development of gross profit.
Despite higher interest expenses, the financial result improved to € -98 million (Q1 2019: € -113 million) since the year-earlier quarter was burdened by expenses from the revaluation of the existing option to acquire F-star Delta Ltd.
Income tax expenses of € 159 million (Q1 2019: € 67 million) led to an effective tax rate of 25.8% (Q1 2019: 25.2%).
Net income, i.e. profit after tax attributable to Merck KGaA shareholders, rose by € 268 million to € 456 million (Q1 2019: € 189 million), yielding earnings per share of € 1.05 (Q1 2019: € 0.43).
Quarterly Statement as of March 31, 2020 Course of Business and Economic Position Merck
The following table presents the composition of EBITDA pre for the reporting period in comparison with the year-earlier quarter.
The IFRS figures have been modified to reflect the elimination of adjustments included in the respective functional costs.
MERCK GROUP
| € million | Reconciliation EBITDA pre1 | ||||||
|---|---|---|---|---|---|---|---|
| Q1 2020 | Q1 2019 | Change | |||||
| IFRS | Elimination of adjustments | Pre1 | IFRS | Elimination of adjustments | Pre1 | Pre1 | |
| Net sales | 4,370 | - | 4,370 | 3,746 | - | 3,746 | 16.7% |
| Cost of sales | -1,654 | 20 | -1,633 | -1,384 | 16 | -1,368 | 19.4% |
| Gross profit | 2,716 | 20 | 2,736 | 2,362 | 16 | 2,378 | 15.1% |
| Marketing and selling expenses | -1,059 | 2 | -1,057 | -1,091 | 3 | -1,088 | -2.9% |
| Administration expenses | -289 | 16 | -272 | -283 | 37 | -246 | 10.5% |
| Research and development costs | -579 | -1 | -580 | -527 | 16 | -511 | 13.6% |
| Impairment losses and reversals of impairment losses on financial assets (net) | 6 | - | 6 | -4 | - | -4 | >100.0 |
| Other operating income and expenses | -80 | -2 | -82 | -79 | 4 | -75 | 9.2% |
| Operating result (EBIT)1 | 716 | 379 | |||||
| Depreciation/amortization/impairment losses/reversals of impairment losses | 431 | -2 | 430 | 474 | - | 474 | -9.4% |
| EBITDA1 | 1,148 | 853 | |||||
| Restructuring expenses | 15 | -15 | - | 61 | -61 | - | |
| Integration expenses / IT expenses | 22 | -22 | - | 13 | -13 | - | |
| Gains (-) / losses (+) on the divestment of businesses | -30 | 30 | - | 2 | -2 | - | |
| Acquisition-related adjustments | 19 | -19 | - | - | - | - | |
| Other adjustments | 8 | -8 | - | -1 | 1 | - | |
| EBITDA pre1 | 1,181 | - | 1,181 | 929 | - | 929 | 27.2% |
| thereof: organic growth1 | 14.5% | ||||||
| thereof: exchange rate effects | 2.0% | ||||||
| thereof: acquisitions/divestments | 10.7% |
1 Not defined by International Financial Reporting Standards (IFRSs).
EBITDA pre, the most important financial indicator used to steer operating business, increased by $27.2\%$ to € 1,181 million (Q1 2019: € 929 million). The organic increase in this key performance indicator amounted to $14.5\%$ and was supported by positive foreign exchange effects $(2.0\%)$ . The acquisitions of Versum and Intermolecular led to a $10.7\%$ increase
in EBITDA pre in the first quarter of 2020. Relative to net sales, the EBITDA pre margin was $27.0\%$ in the first quarter of 2020 (Q1 2019: $24.8\%$ ). Earnings per share pre (earnings per share after net of tax effect of adjustments and amortization of purchased intangible assets) improved by $32.7\%$ to € 1.50 (Q1 2019: € 1.13).
Quarterly Statement as of March 31, 2020 Course of Business and Economic Position Merck
NET ASSETS AND FINANCIAL POSITION
MERCK GROUP
Balance sheet structure
| March 31, 2020 | Dec. 31, 20191 | Change | ||||
|---|---|---|---|---|---|---|
| € million | in % | € million | in % | € million | in % | |
| Non-current assets | 34,730 | 77.6% | 34,808 | 79.4% | -77 | -0.2% |
| thereof: | ||||||
| Goodwill | 17,376 | 17,141 | 235 | |||
| Other intangible assets | 9,089 | 9,175 | -86 | |||
| Property, plant and equipment | 6,110 | 6,213 | -103 | |||
| Other non-current assets | 2,155 | 2,278 | -123 | |||
| Current assets | 10,013 | 22.4% | 9,003 | 20.6% | 1,009 | 11.2% |
| thereof: | ||||||
| Inventories | 3,443 | 3,342 | 101 | |||
| Trade and other current receivables | 3,690 | 3,488 | 202 | |||
| Other current financial assets | 81 | 57 | 24 | |||
| Other current assets | 1,268 | 1,336 | -68 | |||
| Cash and cash equivalents | 1,530 | 781 | 750 | |||
| Total assets | 44,743 | 100.0% | 43,811 | 100.0% | 932 | 2.1% |
| Equity | 18,600 | 41.6% | 17,914 | 40.9% | 686 | 3.8% |
| Non-current liabilities | 15,379 | 34.4% | 14,056 | 32.1% | 1,323 | 9.4% |
| thereof: | ||||||
| Non-current provisions for employee benefits | 3,060 | 3,194 | -133 | |||
| Other non-current provisions | 252 | 254 | -1 | |||
| Non-current financial debt | 10,137 | 8,644 | 1,493 | |||
| Other non-current liabilities | 1,929 | 1,965 | -36 | |||
| Current liabilities | 10,764 | 24.1% | 11,842 | 27.0% | -1,077 | -9.1% |
| thereof: | ||||||
| Current provisions | 904 | 933 | -29 | |||
| Current financial debt | 3,717 | 4,550 | -834 | |||
| Trade and other current payables/Refund liabilities | 2,434 | 2,618 | -184 | |||
| Other current liabilities | 3,710 | 3,740 | -30 | |||
| Total equity and liabilities | 44,743 | 100.0% | 43,811 | 100.0% | 932 | 2.1% |
1 Previous year's figures have been adjusted, see "Effects of disclosure changes" under "Supplemental Financial Information".
Quarterly Statement as of March 31, 2020 Course of Business and Economic Position Merck
In the first three months of 2020, total assets of the Merck Group increased by 2.1% to € 44,743 million (December 31, 2019: € 43,811 million). Since the beginning of 2020, working capital has risen by 11.3% to € 4,392 million (December 31, 2019: € 3,944 million), mainly owing to an increase in trade accounts receivable and inventories.
The composition and the development of net financial debt were as follows:
MERCK GROUP
Net financial debt¹
| March 31, 2020 | Dec. 31, 2019 | Change | ||
|---|---|---|---|---|
| € million | € million | € million | in % | |
| Bonds and commercial paper | 9,576 | 10,059 | -483 | -4.8% |
| Bank loans | 2,786 | 1,587 | 1,199 | 75.6% |
| Liabilities to related parties | 775 | 809 | -34 | -4.2% |
| Loans from third parties and other financial liabilities | 99 | 97 | 2 | 2.2% |
| Liabilities from derivatives (financial transactions) | 83 | 76 | 7 | 9.5% |
| Lease liabilities | 534 | 567 | -33 | -5.8% |
| Financial debt | 13,853 | 13,194 | 659 | 5.0% |
| less: | ||||
| Cash and cash equivalents | 1,530 | 781 | 750 | 96.0% |
| Current financial assets² | 38 | 50 | -12 | -24.0% |
| Net financial debt¹ | 12,285 | 12,363 | -79 | -0.6% |
¹ Not defined by International Financial Reporting Standards (IFRSs).
² Excluding current derivatives (operational).
MERCK GROUP
Reconciliation of net financial debt¹
| € million | 2020 |
|---|---|
| January 1 | 12,363 |
| Currency translation difference | 70 |
| Dividend payments/Profit withdrawals² | 63 |
| Acquisitions² | 1 |
| Payments from other divestments² | -56 |
| Free cash flow¹ | -167 |
| Other | 12 |
| March 31 | 12,285 |
¹ Not defined by International Financial Reporting Standards (IFRSs).
² According to the Consolidated Cash Flow Statement.
Equity rose in the first quarter of 2020 by 3.8% to € 18,600 million (December 31, 2019: € 17,914 million). Consequently, the equity ratio rose to 41.6% (December 31, 2019: 40.9%).
More information on the development of equity can be found in the Consolidated Statement of Changes in Net Equity under "Supplemental Financial Information".
Quarterly Statement as of March 31, 2020 Course of Business and Economic Position Merck
The composition of free cash flow as well as the development of the relevant items are presented in the following table:
MERCK GROUP
| Free cash flow1 | |||
|---|---|---|---|
| € million | Q1 2020 | Q1 2019 | Change |
| Cash flow from operating activities as reported in the consolidated cash flow statement | 516 | 493 | 4.9% |
| Payments for investments in intangible assets | -18 | -9 | 95.0% |
| Proceeds from the disposal of intangible assets | 6 | 17 | -64.9% |
| Payments for investments in property, plant and equipment | -341 | -209 | 63.3% |
| Proceeds from the disposal of property, plant and equipment | 3 | 3 | 20.0% |
| Free cash flow1 | 167 | 295 | -43.2% |
1 Not defined by International Financial Reporting Standards (IFRSs).
Business free cash flow of the Merck Group improved in the first quarter of 2020 to € 661 million (Q1 2019: € 545 million). The increase in EBITDA pre had a positive effect whereas higher
investments and receivables adversely affected business free cash flow.
MERCK GROUP
| Business free cash flow1 | |||
|---|---|---|---|
| € million | Q1 2020 | Q1 2019 | Change |
| EBITDA pre1 | 1,181 | 929 | 27.2% |
| Investments in property, plant and equipment, software as well as advance payments for intangible assets | -175 | -126 | 39.4% |
| Changes in inventories | -101 | -173 | -41.4% |
| Changes in trade accounts receivable and receivables from royalties and licenses | -161 | -59 | >100.0% |
| Lease payments2 | -36 | -26 | 39.8% |
| Elimination of changes in consolidations | -45 | - | - |
| Business free cash flow1 | 661 | 545 | 21.4% |
1 Not defined by International Financial Reporting Standards (IFRSs).
2 Excluding payments for low-value leases and interest components included in lease payments.
Quarterly Statement as of March 31, 2020 Course of Business and Economic Position Healthcare
Healthcare
HEALTHCARE
Key figures
| € million | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Net sales | 1,701 | 1,481 | 14.9% |
| Operating result (EBIT)¹ | 422 | 128 | > 100.0% |
| Margin (% of net sales)¹ | 24.8% | 8.6% | |
| EBITDA¹ | 501 | 329 | 52.3% |
| Margin (% of net sales)¹ | 29.5% | 22.2% | |
| EBITDA pre¹ | 472 | 332 | 42.2% |
| Margin (% of net sales)¹ | 27.8% | 22.4% | |
| Business free cash flow¹ | 377 | 222 | 69.9% |
¹ Not defined by International Financial Reporting Standards (IFRSs).
DEVELOPMENT OF NET SALES AND RESULTS OF OPERATIONS
In the first quarter of 2020, the Healthcare business sector generated above-average organic sales growth of 15.3%. Amid neutral foreign exchange effects (-0.4%), net sales rose by € 220 million to € 1,701 million in the first quarter of 2020 (Q1 2019: € 1,481 million). Foreign exchange effects reflect the positive impact of the increase in value of the U.S. dollar and the Russian ruble against the euro, which was lowered by the development of individual Latin American currencies.
Sales of the key product lines and products developed in the third quarter of 2019 as follows:
HEALTHCARE
Net sales by major product lines /products
| € million | Q1 2020 | Share | Organic growth¹ | Exchange rate effects | Total change | Q1 2019 | Share |
|---|---|---|---|---|---|---|---|
| Oncology | 260 | 15% | 14.3% | -0.9% | 13.5% | 229 | 16% |
| thereof: Erbitux® | 211 | 12% | 7.1% | -1.0% | 6.1% | 199 | 13% |
| thereof: Bavencio® | 33 | 2% | 49.8% | 0.5% | 50.3% | 22 | 1% |
| Neurology & Immunology | 418 | 25% | 20.3% | 1.7% | 22.1% | 342 | 23% |
| thereof: Rebif® | 295 | 17% | -3.4% | 2.0% | -1.4% | 299 | 20% |
| thereof: Mavenclad® | 123 | 7% | >100.0% | 0.1% | >100.0% | 43 | 3% |
| Fertility | 278 | 16% | -3.5% | 0.1% | -3.4% | 287 | 19% |
| thereof: Gonal-f® | 167 | 10% | -1.2% | 0.4% | -0.8% | 168 | 11% |
| General Medicine & Endocrinology | 680 | 40% | 20.9% | -1.6% | 19.3% | 570 | 38% |
| thereof: Glucophage® | 234 | 14% | 31.7% | -2.0% | 29.7% | 180 | 12% |
| thereof: Concor® | 150 | 9% | 29.1% | -0.9% | 28.2% | 117 | 8% |
| thereof: Euthyrox® | 114 | 7% | 27.7% | -2.4% | 25.4% | 91 | 6% |
| thereof: Saizen® | 65 | 4% | 21.7% | -3.9% | 17.8% | 55 | 4% |
| Other | 65 | 4% | 52 | 4% | |||
| Healthcare | 1,701 | 100% | 15.3% | -0.4% | 14.9% | 1,481 | 100% |
¹ Not defined by International Financial Reporting Standards (IFRSs).
Quarterly Statement as of March 31, 2020 Course of Business and Economic Position Healthcare
The oncology drug Erbitux® (cetuximab) generated favorable organic sales growth of $7.1\%$ , thus continuing the positive trend from 2019. Including negative foreign exchange effects, global net sales of Erbitux® increased in the first quarter of 2020 by $6.1\%$ to € 211 million (Q1 2019: € 199 million). The Asia-Pacific region could not maintain the high growth rates of the previous year, which were mainly driven by the inclusion of Erbitux® in the National Reimbursement Drug List (NRDL) in China. Consequently, sales in this region stagnated at € 77 million (Q1 2019: € 75 million). The moderate development in Asia is due in particular to the initial impacts of the Covid-19 pandemic. In the core markets within Europe, the situation
remained difficult owing to the competitive environment. Nevertheless, positive effects from tenders won led to favorable organic growth of $12.3\%$ for the region as a whole. Sales amounted to € 111 million (Q1 2019: € 98 million).
Within Immuno-Oncology, sales of the oncology drug Bavencio® (avelumab) grew organically by $49.8\%$ amid stable foreign exchange rates to € 33 million (Q1 2019: € 22 million). The marketing authorizations in the United States, Europe and Japan in 2019 for the first-line treatment of patients with advanced renal cell carcinoma were key drivers of this sales growth.
HEALTHCARE
Product sales and organic growth $^{1}$ of Rebif®, Glucophage® and Erbitux® by region - Q1 2020
| Total | Europe | North America | Asia-Pacific (APAC) | Latin America | Middle East and Africa (MEA) | ||
|---|---|---|---|---|---|---|---|
| Rebif® | € million | 295 | 105 | 171 | 3 | 6 | 9 |
| Organic growth1 in % | -3.4% | 4.7% | -7.0% | -9.8% | 3.5% | -18.5% | |
| % of sales | 100% | 36% | 58% | 1% | 2% | 3% | |
| Glucophage® | € million | 234 | 35 | - | 147 | 35 | 17 |
| Organic growth1 in % | 31.7% | 18.3% | - | 39.0% | 33.2% | 5.2% | |
| % of sales | 100% | 15% | - | 63% | 15% | 7% | |
| Erbitux® | € million | 211 | 111 | - | 77 | 17 | 6 |
| Organic growth1 in % | 7.1% | 12.3% | - | 0.6% | 42.9% | -42.3% | |
| % of sales | 100% | 53% | - | 36% | 8% | 3% |
1 Not defined by International Financial Reporting Standards (IFRSs).
Mavenclad®, a medicine for oral short-course treatment of highly active relapsing multiple sclerosis, contributed substantially to the positive development of the Healthcare business sector, delivering organic growth of € 80 million. Sales of € 123 million were generated (Q1 2019: € 43 million). In particular, this reflects the regulatory approval of Mavenclad® in the United States on March 29, 2019.
The drug Rebif®, which is used to treat relapsing forms of multiple sclerosis, posted an organic decline of $-3.4\%$ , thus slowing down the negative trend of previous quarters. Thanks to positive foreign exchange effects of $2.0\%$ , it was possible to maintain net sales of € 295 million at the year-earlier level (Q1 2019: € 299 million). In North America, the largest sales market for Rebif®, the continued difficult competitive situation in the interferon market as well as competition from oral dosage forms were responsible for the organic sales decline of $-7.0\%$ . Including currency tailwinds of $2.7\%$ , sales amounted to € 171 million (Q1 2019: € 179 million). In Europe, a tender award in Russia led to organic sales growth of $4.7\%$ . Including positive foreign exchange effects of $2.7\%$ , net sales of Rebif® in this region amounted to € 105 million (Q1 2019: € 98 million).
The decline in the other regions, where Rebif® generated sales of € 19 million (Q1 2019: € 23 million), was mainly attributable to the organic sales decline in the Middle East & Africa region as well as to negative foreign exchange developments stemming from individual Latin American currencies.
Gonal-f®, the leading recombinant hormone used in the treatment of infertility, generated a moderate organic sales decline of $-1.2\%$ . This was partly mitigated by slightly positive exchange rate effects of $0.4\%$ . Globally, sales thus stagnated at € 167 million (Q1 2019: € 168 million). The sharp decline in demand from China, driven by the Covid-19 pandemic, was mainly responsible for this development.
The General Medicine & Endocrinology franchise (including CardioMetabolic Care), which commercializes products to treat cardiovascular diseases, thyroid disorders, diabetes and growth disorders, among other things, delivered organic growth of $20.9\%$ . Including a negative exchange rate effect of $-1.6\%$ , net sales totaled € 680 million (Q1 2019: € 570 million). The products Concor®, Euthyrox® and Saizen® contributed to this positive development with double-digit organic growth rates.
Quarterly Statement as of March 31, 2020 Course of Business and Economic Position Healthcare
In terms of sales, the diabetes treatment Glucophage® from the General Medicine franchise, became the second-leading medicine in the product portfolio of the Healthcare business sector. In comparison with the year-earlier quarter, sales increased by € 54 million to € 234 million (Q1 2019: € 180 million). This corresponds to organic growth of 31.7%, which was only slightly lowered by negative foreign exchange effects of -2.0%. In particular, this was mainly driven by positive performance in China and Latin America.
To some extent, the strong demand for medicines from the General Medicine & Endocrinology franchise in the first quarter of 2020 was also due to the Covid-19 pandemic and mainly represented advance effects.
Net sales of the business sector by region developed in the first quarter of 2020 as follows:
HEALTHCARE
| Net sales by region | ||||||||
|---|---|---|---|---|---|---|---|---|
| € million | Q1 2020 | Share | Organic growth¹ | Exchange rate effects | Acquisitions/ divestments | Total change | Q1 2019 | Share |
| Europe | 622 | 37% | 15.5% | 0.1% | - | 15.6% | 538 | 36% |
| North America | 370 | 22% | 18.0% | 3.4% | - | 21.3% | 305 | 21% |
| Asia-Pacific (APAC) | 442 | 26% | 13.3% | 0.3% | - | 13.6% | 389 | 26% |
| Latin America | 177 | 10% | 26.1% | -12.8% | - | 13.3% | 157 | 11% |
| Middle East and Africa (MEA) | 89 | 5% | -5.0% | 1.5% | - | -3.5% | 92 | 6% |
| Healthcare | 1,701 | 100% | 15.3% | -0.4% | - | 14.9% | 1,481 | 100% |
¹ Not defined by International Financial Reporting Standards (IFRSs).
The following table presents the composition of EBITDA pre for the reporting period in comparison with the year-earlier quarter. The IFRS figures have been modified to reflect the elimination of adjustments included in the respective functional costs.
HEALTHCARE
| Reconciliation EBITDA pre¹ | |||||||
|---|---|---|---|---|---|---|---|
| Q1 2020 | Q1 2019 | Change | |||||
| € million | IFRS | Elimination of adjustments | Pre¹ | IFRS | Elimination of adjustments | Pre¹ | Pre¹ |
| Net sales | 1,701 | - | 1,701 | 1,481 | - | 1,481 | 14.9% |
| Cost of sales | -393 | - | -393 | -325 | - | -325 | 21.0% |
| Gross profit | 1,307 | - | 1,307 | 1,156 | - | 1,156 | 13.1% |
| Marketing and selling expenses | -423 | 1 | -423 | -550 | - | -550 | -23.2% |
| Administration expenses | -79 | 1 | -78 | -88 | 2 | -86 | -8.6% |
| Research and development costs | -417 | - | -417 | -380 | - | -380 | 9.8% |
| Impairment losses and reversals of impairment losses on financial assets (net) | 5 | - | 5 | -4 | - | -4 | >100.0% |
| Other operating income and expenses | 31 | -29 | 2 | -6 | 1 | -5 | >100.0% |
| Operating result (EBIT)¹ | 422 | 128 | |||||
| Depreciation/amortization/impairment losses/reversals of impairment losses | 79 | -2 | 77 | 201 | - | 201 | -61.7% |
| EBITDA¹ | 501 | 329 | |||||
| Restructuring expenses | 2 | -2 | - | - | - | - | |
| Integration expenses/IT expenses | 1 | -1 | - | 2 | -2 | - | |
| Gains (-)/losses (+) on the divestment of businesses | -32 | 32 | - | 1 | -1 | - | |
| Acquisition-related adjustments | - | - | - | - | - | - | |
| Other adjustments | - | - | - | - | - | - | |
| EBITDA pre¹ | 472 | - | 472 | 332 | - | 332 | 42.2% |
| thereof: organic growth¹ | 40.9% | ||||||
| thereof: exchange rate effects | 1.3% | ||||||
| thereof: acquisitions/divestments | - |
¹ Not defined by International Financial Reporting Standards (IFRSs).
Quarterly Statement as of March 31, 2020 Course of Business and Economic Position Healthcare
In the first quarter of 2020, gross profit of the Healthcare business sector increased to € 1,307 million (Q1 2019: € 1,156 million). The resulting gross margin was 76.9% (Q1 2019: 78.1%). The main drivers of the decline in gross margin were changes to the product mix.
After eliminating adjustments, marketing and selling expenses declined by 23.2% to € 423 million in comparison with the year-earlier quarter (Q1 2019: € 550 million). This resulted primarily from the end of amortization in connection with the purchase price allocation from the acquisition of Serono in 2006.
Research and development costs reflected continued investments in the Biopharma development pipeline and amounted to € 417 million (Q1 2019: € 380 million). This item also includes expenses from the termination of the JAVELIN Head and Neck 100 study.
The change in other operating expenses and income was attributable to several factors. The gain on the divestment of Allergopharma, which was eliminated in the calculation of EBITDA pre, as well as income from the global strategic
alliance entered into last year with GlaxoSmithKline plc., United Kingdom, to co-develop and co-commercialize bintrafusp alfa had a positive effect on other operating expenses and income in the first quarter of 2020. This was offset by the expiration of income streams from the upfront cash payment from Pfizer Inc., USA, dating back to 2014. In the year-earlier quarter, other operating expenses and income were negatively impacted by an impairment loss on an intangible asset in connection with the immuno-oncology collaboration with F-star Delta Ltd.
EBITDA pre grew to € 472 million in the first quarter of 2020 (Q1 2019: € 332 million). Organic growth of 40.9% was supported by slightly positive foreign exchange effects of 1.3%. The EBITDA pre margin rose to 27.8% (Q1 2019: 22.4%).
DEVELOPMENT OF BUSINESS FREE CASH FLOW
In the first quarter of 2020, business free cash flow amounted to € 377 million (Q1 2019: € 222 million). The increase was due mainly to the growth of EBITDA pre and the positive development of inventories in comparison with the year-earlier quarter. Higher investments had an opposing effect.
HEALTHCARE
Business free cash flow¹
| € million | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| EBITDA pre¹ | 472 | 332 | 42.2% |
| Investments in property, plant and equipment, software as well as advance payments for intangible assets | -73 | -47 | 56.0% |
| Changes in inventories | -5 | -66 | -92.6% |
| Changes in trade accounts receivable and receivables from royalties and licenses | 22 | 13 | 61.9% |
| Lease payments² | -12 | -10 | 18.3% |
| Elimination Allergopharma divestment | -26 | - | - |
| Business free cash flow¹ | 377 | 222 | 69.9% |
¹ Not defined by International Financial Reporting Standards (IFRSs).
² Excluding payments for low-value leases and interest components included in lease payments.
Quarterly Statement as of March 31, 2020 Course of Business and Economic Position Life Science
Life Science
LIFE SCIENCE
Key figures
| € million | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Net sales | 1,769 | 1,661 | 6.5% |
| Operating result (EBIT)¹ | 345 | 313 | 10.2% |
| Margin (% of net sales)¹ | 19.5% | 18.9% | |
| EBITDA¹ | 541 | 507 | 6.8% |
| Margin (% of net sales)¹ | 30.6% | 30.5% | |
| EBITDA pre¹ | 553 | 516 | 7.2% |
| Margin (% of net sales)¹ | 31.2% | 31.0% | |
| Business free cash flow¹ | 246 | 268 | -8.2% |
¹ Not defined by International Financial Reporting Standards (IFRSs).
DEVELOPMENT OF SALES AND RESULTS OF OPERATIONS
In the first quarter of 2020, the Life Science business sector generated solid organic sales growth of 5.6% accompanied by a favorable foreign exchange effect of 0.9%, resulting in total net sales growth of 6.5% over the year-earlier quarter. The main contribution to organic growth came from the Process Solutions business unit. Taking these effects into account, Life Science net sales increased overall to € 1,769 million (Q1 2019: € 1,661 million).
LIFE SCIENCE
Net sales by business unit
| € million | Q1 2020 | Share | Organic growth¹ | Exchange rate effects | Acquisitions/ divestments | Total change | Q1 2019² | Share |
|---|---|---|---|---|---|---|---|---|
| Process Solutions | 802 | 45% | 13.2% | 1.3% | – | 14.5% | 700 | 42% |
| Research Solutions | 546 | 31% | – | 0.8% | – | 0.8% | 542 | 33% |
| Applied Solutions | 421 | 24% | – | 0.4% | – | 0.4% | 419 | 25% |
| Life Science | 1,769 | 100% | 5.6% | 0.9% | – | 6.5% | 1,661 | 100% |
¹ Not defined by International Financial Reporting Standards (IFRSs).
² Previous year's figures have been adjusted owing to an internal realignment.
The Process Solutions business unit, which markets products and services for the entire pharmaceutical production value chain, generated organic sales growth of 13.2%, which was the highest rate within the Life Science business sector. Amid a favorable foreign exchange effect of 1.3%, sales totaled € 802 million in the first quarter of 2020 (Q1 2019: € 700 million). Process Solutions thus accounted for 45% of Life Science net sales. Geographically, all regions delivered double-digit growth within Process Solutions.
The Research Solutions business unit, which provides products and services to support life science research for pharmaceutical, biotechnology and academic research laboratories, did not achieve organic sales growth in Q1 2020. Weaker demand from academic laboratories in connection with the Covid-19 crisis had a negative impact here. Including a favorable foreign exchange effect of 0.8%, sales totaled € 546 million in Q1 2020 (Q1 2019: € 542 million). Research Solutions thus accounted for 31% of Life Science net sales. In regional terms, North America and Latin America were the strongest growth drivers, however they were offset by weaker performance in Asia-Pacific and Europe.
The Applied Solutions business unit with its broad range of products for researchers as well as scientific and industrial laboratories accounted for a 24% share of Life Science net sales. Organically, net sales of Applied Solutions were at the same level as in the year-earlier quarter. Lab Water
Quarterly Statement as of March 31, 2020 Course of Business and Economic Position Life Science
Solutions saw initial negative effects from the Covid-19 pandemic. Assisted by a favorable foreign exchange effect of $0.4\%$ , sales increased to € 421 million in the first quarter of 2020 (Q1 2019: € 419 million). In regional terms, slightly stronger
demand in North America and Europe was canceled out by the net sales decrease in Asia-Pacific.
Net sales of the business sector by region developed as follows:
LIFE SCIENCE
Net sales by region
| € million | Q1 2020 | Share | Organic growth1 | Exchange rate effects | Acquisitions/ divestments | Total change | Q1 2019 | Share |
|---|---|---|---|---|---|---|---|---|
| Europe | 614 | 35% | 5.2% | 0.5% | - | 5.7% | 581 | 35% |
| North America | 644 | 36% | 8.9% | 3.2% | - | 12.1% | 575 | 35% |
| Asia-Pacific (APAC) | 422 | 24% | 0.4% | 0.5% | - | 0.9% | 418 | 25% |
| Latin America | 66 | 4% | 14.2% | -12.6% | - | 1.6% | 65 | 4% |
| Middle East and Africa (MEA) | 23 | 1% | 2.3% | -0.3% | - | 2.0% | 22 | 1% |
| Life Science | 1,769 | 100% | 5.6% | 0.9% | - | 6.5% | 1,661 | 100% |
1 Not defined by International Financial Reporting Standards (IFRSs).
The following table presents the composition of EBITDA pre for the first quarter of 2020 in comparison with the year-earlier quarter. The IFRS figures have been modified to reflect the
elimination of adjustments included in the respective functional costs.
LIFE SCIENCE
Reconciliation EBITDA pre
| € million | Q1 2020 | Q1 2019 | Change | ||||
|---|---|---|---|---|---|---|---|
| IFRS | Elimination of adjustments | Pre1 | IFRS | Elimination of adjustments | Pre1 | Pre1 | |
| Net sales | 1,769 | - | 1,769 | 1,661 | - | 1,661 | 6.5% |
| Cost of sales | -744 | - | -744 | -719 | 1 | -718 | 3.6% |
| Gross profit | 1,024 | - | 1,025 | 942 | 1 | 943 | 8.7% |
| Marketing and selling expenses | -498 | - | -497 | -470 | 1 | -469 | 6.1% |
| Administration expenses | -89 | 9 | -80 | -88 | 6 | -81 | -1.9% |
| Research and development costs | -75 | - | -75 | -62 | - | -62 | 22.2% |
| Impairment losses and reversals of impairment losses on financial assets (net) | - | - | - | - | - | - | - |
| Other operating income and expenses | -18 | 2 | -16 | -10 | 1 | -8 | 88.8% |
| Operating result (EBIT)1 | 345 | 313 | |||||
| Depreciation/amortization / impairment losses / reversals of impairment losses | 196 | - | 196 | 193 | - | 193 | 1.3% |
| EBITDA1 | 541 | 507 | |||||
| Restructuring expenses | 2 | -2 | - | 1 | -1 | - | |
| Integration expenses/IT expenses | 10 | -10 | - | 7 | -7 | - | |
| Gains (-) / losses (+) on the divestment of businesses | - | - | - | 1 | -1 | - | |
| Acquisition-related adjustments | - | - | - | - | - | - | |
| Other adjustments | - | - | - | - | - | - | |
| EBITDA pre1 | 553 | - | 553 | 516 | - | 516 | 7.2% |
| thereof: organic growth1 | 8.2% | ||||||
| thereof: exchange rate effects | -0.5% | ||||||
| thereof: acquisitions/divestments | -0.5% |
1 Not defined by International Financial Reporting Standards (IFRSs).
Quarterly Statement as of March 31, 2020 Course of Business and Economic Position Life Science
Adjusted gross profit increased by 8.7% to € 1,025 million (Q1 2019: € 943 million). This strong increase was driven by the growth in sales as well as higher production capacity utilization. The gross margin of Life Science, i.e. gross profit as percentage of net sales, amounted to 57.9% (Q1 2019: 56.8%). Marketing and selling expenses increased by 6.1% to € 497 million (Q1 2019: € 469 million) while research and development costs increased by 22.2% to € 75 million (Q1 2019: € 62 million). Other operating expenses (net) increased to € 16 million (Q1 2019: € 8 million). After eliminating adjustments, amortization and depreciation, EBITDA pre rose by 7.2% to € 553 million (Q1 2019: € 516 million). Organic earnings growth was 8.2%. This reflects the strong performance of the Life Science business sector with a continued focus on driving sales and managing costs.
DEVELOPMENT OF BUSINESS FREE CASH FLOW
In the first quarter of 2020, Life Science generated business free cash flow of € 246 million (Q1 2019: € 268 million). This development was driven by an increase in receivables, which could not be offset by higher EBITDA pre.
LIFE SCIENCE
Business free cash flow¹
| € million | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| EBITDA pre¹ | 553 | 516 | 7.2% |
| Investments in property, plant and equipment, software as well as advance payments for intangible assets | -58 | -59 | -0.5% |
| Changes in inventories | -89 | -88 | 1.4% |
| Changes in trade accounts receivable and receivables from royalties and licenses | -145 | -91 | 59.8% |
| Lease payments² | -15 | -11 | 37.0% |
| Business free cash flow¹ | 246 | 268 | -8.2% |
¹ Not defined by International Financial Reporting Standards (IFRSs).
² Excluding payments for low-value leases and interest components included in lease payments.
Quarterly Statement as of March 31, 2020 Course of Business and Economic Position Performance Materials
Performance Materials
PERFORMANCE MATERIALS
Key figures
| € million | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Net sales | 900 | 604 | 49.0% |
| Operating result (EBIT)¹ | 116 | 95 | 22.1% |
| Margin (% of net sales)¹ | 12.9% | 15.8% | |
| EBITDA¹ | 251 | 157 | 59.7% |
| Margin (% of net sales)¹ | 27.9% | 26.0% | |
| EBITDA pre¹ | 286 | 193 | 48.3% |
| Margin (% of net sales)¹ | 31.7% | 31.9% | |
| Business free cash flow¹ | 184 | 172 | 7.0% |
¹ Not defined by International Financial Reporting Standards (IFRSs).
DEVELOPMENT OF NET SALES AND RESULTS OF OPERATIONS
In the first quarter of 2020, net sales of the Performance Materials business sector increased by 49.0% to € 900 million (Q1 2019: € 604 million). The key factors behind this growth were additional net sales from the acquisitions of Versum and Intermolecular (52.1%) as well as positive foreign exchange effects of 2.4%. These two favorable effects more than offset an organic decrease in net sales in the Performance Materials business units before the acquisitions.
PERFORMANCE MATERIALS
Net sales by business unit
| € million | Q1 2020 | Share | Organic growth¹ | Exchange rate effects | Acquisitions/ divestments | Total change | Q1 2019 | Share |
|---|---|---|---|---|---|---|---|---|
| Display Solutions | 304 | 34% | -10.5% | 2.4% | - | -8.1% | 331 | 55% |
| Semiconductor Solutions | 485 | 54% | 8.7% | 3.7% | > 100.0% | > 100.0% | 152 | 25% |
| Surface Solutions | 111 | 12% | -9.1% | 0.7% | - | -8.4% | 121 | 20% |
| Other | 0 | 0% | -33.4% | 2.1% | - | -31.3% | 0 | 0% |
| Performance Materials | 900 | 100% | -5.4% | 2.4% | 52.1% | 49.0% | 604 | 100% |
¹ Not defined by International Financial Reporting Standards (IFRSs).
The Display Solutions business unit, consisting mainly of the business with liquid crystals, photoresists for display applications as well as OLED materials, recorded an organic decrease as expected in the first quarter of 2020. This decline of -10.5% was partly offset by positive foreign exchange effects of 2.4%. In the first two quarters of 2019 – primarily in the first quarter of 2019 – net sales continued to benefit from projects by panel makers in China to build up production capacities. Classified as a pandemic by the World Health Organization (WHO) on March 11, 2020, the Covid-19 situation exerted initial negative effects on the net sales of the Display Solutions business unit, albeit to a comparatively small extent.
Quarterly Statement as of March 31, 2020 Course of Business and Economic Position Performance Materials
Following the acquisitions of Versum and Intermolecular, the Semiconductor Solutions business unit comprises two new businesses, namely Semiconductor Materials and Delivery Systems & Services. Semiconductor Materials will continue to focus on the development and commercialization of material-based solutions for the semiconductor industry. Delivery Systems & Services will focus on developing and operating delivery systems for semiconductor manufacturers. Additionally, the unit will offer services to support the equipment install base and safe handling of the specialty materials that flow through it. As expected against the backdrop of the 2019 decline in the semiconductor market, the pre-acquisition Semiconductor Solutions business unit delivered strong organic growth of $8.7\%$ . This was further boosted by positive exchange rate effects of $3.7\%$ . The Covid-19 pandemic only had a slight
impact on the Semiconductor Solutions business unit in the first quarter of 2020.
Net sales of Semiconductor Solutions increased by approximately more than three-fold owing to the acquisitions of Versum and Intermolecular in the first quarter of 2020. As a result, the share of Performance Materials sales attributable to this business unit increased from $25\%$ to $54\%$ .
In the first quarter of 2020, net sales of the Surface Solutions business unit declined by a total of $-8.4\%$ . An organic decline of $-9.1\%$ stemmed mainly from weaker demand, particularly from the automotive and cosmetic markets, against the backdrop of uncertainties resulting from the Covid-19 pandemic. Positive foreign exchange effects of $0.7\%$ mitigated this only slightly.
Net sales of the business sector by region developed in the first quarter of 2020 as follows:
PERFORMANCE MATERIALS
| Net sales by region | ||||||||
|---|---|---|---|---|---|---|---|---|
| € million | Q1 2020 | Share | Organic growth1 | Exchange rate effects | Acquisitions/ divestments | Total change | Q1 2019 | Share |
| Europe | 74 | 8% | 0.2% | 0.2% | 27.3% | 27.7% | 58 | 10% |
| North America | 136 | 15% | 11.3% | 3.2% | >100.0% | >100.0% | 54 | 9% |
| Asia-Pacific (APAC) | 672 | 75% | -7.9% | 2.7% | 45.3% | 40.1% | 480 | 79% |
| Latin America | 9 | 1% | -3.8% | -5.7% | 6.2% | -3.2% | 9 | 1% |
| Middle East and Africa (MEA) | 9 | 1% | -21.2% | 0.7% | >100.0% | >100.0% | 3 | 1% |
| Performance Materials | 900 | 100% | -5.4% | 2.4% | 52.1% | 49.0% | 604 | 100% |
1 Not defined by International Financial Reporting Standards (IFRSs).
Quarterly Statement as of March 31, 2020 Course of Business and Economic Position Performance Materials
The following table presents the composition of EBITDA pre for the reporting period in comparison with the year-earlier quar
ter. The IFRS figures have been modified to reflect the elimination of adjustments included in the respective functional costs.
PERFORMANCE MATERIALS
Reconciliation EBITDA pre
| € million | Q1 2020 | Q1 2019 | Change | ||||
|---|---|---|---|---|---|---|---|
| IFRS | Elimination of adjustments | Pre¹ | IFRS | Elimination of adjustments | Pre¹ | Pre¹ | |
| Net sales | 900 | - | 900 | 604 | - | 604 | 49.0% |
| Cost of sales | -515 | 20 | -495 | -338 | 15 | -323 | 53.5% |
| Gross profit | 385 | 20 | 405 | 266 | 15 | 282 | 43.9% |
| Marketing and selling expenses | -136 | 1 | -134 | -66 | 2 | -63 | >100.0% |
| Administration expenses | -38 | - | -38 | -23 | 1 | -22 | 71.8% |
| Research and development costs | -71 | -1 | -73 | -72 | 16 | -56 | 29.2% |
| Impairment losses and reversals of impairment losses on financial assets (net) | 1 | - | 1 | - | - | - | - |
| Other operating income and expenses | -24 | 14 | -10 | -10 | 1 | -9 | 8.9% |
| Operating result (EBIT)¹ | 116 | 95 | |||||
| Depreciation / amortization / impairment losses / reversals of impairment losses | 135 | - | 135 | 62 | - | 62 | >100.0% |
| EBITDA¹ | 251 | 157 | |||||
| Restructuring expenses | 7 | -7 | - | 34 | -34 | - | |
| Integration expenses/IT expenses | 8 | -8 | - | 1 | -1 | - | |
| Gains (-) / losses (+) on the divestment of businesses | - | - | - | - | - | - | |
| Acquisition-related adjustments | 19 | -19 | - | - | - | - | |
| Other adjustments | - | - | - | - | - | - | |
| EBITDA pre¹ | 286 | - | 286 | 193 | - | 193 | 48.3% |
| thereof: organic growth¹ | -8.8% | ||||||
| thereof: exchange rate effects | 5.1% | ||||||
| thereof: acquisitions/divestments | 52.1% |
¹ Not defined by International Financial Reporting Standards (IFRSs).
Adjusted gross profit for the Performance Materials business sector was € 405 million in the first quarter of 2020 (Q1 2019: € 282 million). A key driver of this 43.9% increase over the year-earlier quarter was the contribution from the acquisition of Versum. At 45.0%, adjusted gross margin was below the year-earlier figure (Q1 2019: 46.6%). Excluding adjustments, the operating result (EBIT) increased by € 21 million to € 116 million in the first quarter of 2020 (Q1 2019: € 95 million). This was mainly driven by the additional EBIT contribution from the acquisition of Versum.
The increase in marketing and selling expenses as well as administration expenses was attributable to the additional costs of the Versum and Intermolecular organizations. After eliminating adjustments, the decrease in research and development costs from the successful implementation of the "Bright Future" transformation program was canceled out by additional expenses from the Versum and Intermolecular organizations. EBITDA pre of the business sector grew by 48.3% to € 286 million (Q1 2019: € 193 million). Additional EBITDA pre from the acquisitions (52.1%) and positive foreign
Quarterly Statement as of March 31, 2020 Course of Business and Economic Position Performance Materials
48.3% to € 286 million (Q1 2019: € 193 million). Additional EBITDA pre from the acquisitions (52.1%) and positive foreign exchange effects (5.1%) significantly more than offset the organic decline in EBITDA pre (-8.8%) that was expected as a result of the high comparable figures for liquid crystals in Q1 2019. At 31.7%, the EBITDA pre margin was slightly below the year-earlier figure (Q1 2019: 31.9%).
DEVELOPMENT OF BUSINESS FREE CASH FLOW
In the first quarter of 2020, business free cash flow of the Performance Materials business sector increased by 7.0% to € 184 million (Q1 2019: € 172 million). Higher EBITDA pre and a lower increase in inventories significantly more than offset higher investments as well as an increase in receivables.
PERFORMANCE MATERIALS
Business free cash flow¹
| € million | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| EBITDA pre¹ | 286 | 193 | 48.3% |
| Investments in property, plant and equipment, software as well as advance payments for intangible assets | -35 | -14 | > 100.0% |
| Changes in inventories | -9 | -19 | -54.7% |
| Changes in trade accounts receivable and receivables from royalties and licenses | -34 | 15 | > 100.0% |
| Lease payments² | -5 | -2 | > 100.0% |
| Elimination first-time consolidation of Versum/Intermolecular | -19 | - | - |
| Business free cash flow¹ | 184 | 172 | 7.0% |
¹ Not defined by International Financial Reporting Standards (IFRSs).
² Excluding payments for low-value leases and interest components included in lease payments.
Quarterly Statement as of March 31, 2020 Course of Business and Economic Position Corporate and Other
Corporate and Other
Corporate and Other comprises Group administration expenses for Group functions that cannot be directly allocated to the business sectors, such as Finance, Procurement, Legal, Communications, and Human Resources. Corporate and Other
additionally encompass expenses for central, non-allocated IT functions, including expenses related to the expansion and harmonization of IT systems within the Merck Group as well as research and development costs spanning business sectors.
CORPORATE AND OTHER
Key figures
| € million | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Operating result (EBIT)1 | -168 | -158 | 6.6% |
| EBITDA1 | -146 | -140 | 4.0% |
| EBITDA pre1 | -129 | -112 | 15.5% |
| Business free cash flow1 | -146 | -118 | 24.3% |
1 Not defined by International Financial Reporting Standards (IFRSs).
After eliminating adjustments, administration expenses amounted to € 76 million in the first quarter of 2020 (Q1 2019: € 57 million). Research and development costs spanning business sectors, for instance expenses for the Innovation Center were allocated to Corporate and Other in the amount of € 15 million in the first quarter of 2020 (Q1 2019: € 13 million). After eliminating adjustments, other
operating expenses (net) rose to € 58 million in the first quarter of 2020 (Q1 2019: € 52 million). After eliminating depreciation, amortization and adjustments, EBITDA pre totaled € -129 million in the first quarter of 2020 (Q1 2019: € -112 million). The increase in negative business free cash flow to € -146 million (Q1 2019: € -118 million) was largely the outcome of the development of EBITDA pre.
Quarterly Statement as of March 31, 2020 Outlook
Outlook
With the publication of the results of 2019, we provided a forecast of the development of net sales, EBITDA pre and business free cash flow for the Merck Group and the individual business sectors in 2020.
Following the end of the first quarter, this forecast is now specified in the following report.
The divestment of Allergopharma to Dermapharm Holding SE ("Dermapharm") closed on March 31, 2020. The allergy business of Merck in Europe was transferred to Dermapharm on March 31, 2020. The transaction closing in China is expected in the second half of 2020. The following forecast already reflects this divestment and correspondingly shows a portfolio effect from this transaction on net sales over 2019, which however is not considered to be material at Group level.
Furthermore, in the context of the global outbreak of the Covid-19 pandemic, in deviation from our previous forecast we assume a significant burden on global economic growth,
which will affect all our businesses, particularly however Healthcare and Performance Materials. Due to the high level of uncertainty with respect to the further development of the Covid-19 pandemic, this outlook is being made with a considerably higher degree of uncertainty than normally. Since the dynamics of the pandemic vary regionally, we are presenting our assumptions in this respect as follows: For China, we assume that the Covid-19 pandemic reached its peak at the end of the first quarter and that a significant easing of the situation will set in as of the second quarter of 2020. For Europe and the United States, we do not expect the pandemic to peak until the second quarter, and currently expect that the outbreak will normalize by the end of the third quarter. Moreover, the current forecast does not assume that a second disease wave will occur in the named regions. Based on these assumptions, the forecast for the Merck Group in 2020 is as follows:
Merck Group
FORECAST FOR THE MERCK GROUP
| € million | Actual results 2019 | Forecast for 2020 | Key assumptions |
|---|---|---|---|
| Net sales | 16,152 | ~16,800 to 17,800 • Slight to moderate organic growth • Positive portfolio effect in the mid single-digit percentage range • Exchange rate effect -2% to +1% | • Organic growth driven by Life Science; Healthcare stable, Performance Materials with a moderate to strong organic decline • Positive portfolio effect in the mid single-digit percentage range, mainly resulting from the acquisition of Versum Materials • Negative foreign exchange effect caused by emerging market currencies softened by the U.S. dollar |
| EBITDA pre | 4,385 | ~4,350 to 4,850 • Stable organic development • Positive portfolio effect in the mid single-digit percentage range • Slightly negative foreign exchange effect of 0% to -3% | • Strong organic growth in Life Science absorbed by a slight decrease in Healthcare and a decline in Performance Materials in the low to mid-teens-percentage range • Realization of synergies from the integration of Versum Materials in Performance Materials as planned • Negative foreign exchange effect caused by emerging market currencies softened by the U.S. dollar |
| Business free cash flow | 2,732 | ~2,650 to 3,250 Slight to strong increase | Rise in EBITDA pre and positive effects from working capital compensate for high capital spending |
NET SALES
Following a solid first quarter of 2020, we forecast for the full year 2020 a slight to moderate organic net sales increase over the previous year. We continue to assume that Life Science will be a major driver of this organic growth. Against the backdrop of the Covid-19 pandemic, the Healthcare business sector is
expected to show stable organic growth in 2020, whereas our Performance Materials business will see a moderate to strong organic decline. In the first three quarters, the effect of the acquisition of Versum Materials will be reported as a portfolio effect, which we still forecast in the mid single-digit percentage range. With regard to exchange rate developments, we
Quarterly Statement as of March 31, 2020 Outlook
continue to expect a volatile environment due to political and macroeconomic developments. Overall, we forecast a stable to slightly unfavorable foreign exchange development of $-2\%$ to $+1\%$ that can be attributed to the currencies of numerous growth markets, especially in Latin America. This effect will be mitigated by a favorable development of the euro-U.S. dollar exchange rate, which we see in a range of 1.08 to 1.12. Overall, we therefore forecast Group net sales of € 16.8 billion to € 17.8 billion for 2020.
EBITDA PRE
According to our expectations, in 2020 Group EBITDA pre will be in a corridor between € 4.35 billion and € 4.85 billion (2019: € 4.38 billion). Owing to strong restrictions of economic
life and declining income in the context of the Covid-19 pandemic with correspondingly adverse effects on our businesses, we forecast a merely stable organic development. The portfolio effect from the acquisition of Versum Materials is still expected to be in the mid single-digit percentage range and will lead to a slight improvement in the margin of the Merck Group. The expected foreign exchange development is forecast to have a slightly negative effect in the percentage range of between $-3\%$ and $0\%$ on Group EBITDA pre; it will be seen particularly in the Healthcare and Life Science businesses. The development of the currencies in multiple growth markets will have an adverse impact on earnings and more than offset the positive effects stemming from the U.S. dollar.
Healthcare
FORECAST FOR THE HEALTHCARE BUSINESS SECTOR
| € million | Actual results 2019 | Forecast for 2020 | Key assumptions |
|---|---|---|---|
| Net sales | 6,714 | • Organic stable • Adverse portfolio effect in the mid double-digit million euro range • Neutral to moderately adverse foreign exchange effect | • Decline in the core business owing to strong impacts of the Covid-19 pandemic particularly on the Fertility franchise • Substantial growth contribution from our newly approved products, particularly Mavenclad® • Slight adverse portfolio effect from the divestment of Allergopharma • Adverse foreign exchange effect due to exchange rate developments in multiple growth markets, softened by the U.S. dollar |
| EBITDA pre | 1,922 | • Organic slightly negative • Slightly to moderately adverse foreign exchange effect | • Continued expected decline in sales of Rebif® as well as significant negative effects of the Covid-19 pandemic, particularly in the Fertility franchise will be softened by the expected significant earnings contributions from our new products, particularly Mavenclad® • Marketing and selling expenses as well as research and development costs decrease in absolute terms and in percent of sales due to rigorous cost management and strict pipeline prioritization • Adverse foreign exchange effect due to the exchange rate developments in multiple growth markets, softened by the U.S. dollar |
| Business free cash flow | 1,252 | Moderate decline | • Decline in EBITDA pre, higher investments in property, plant and equipment • Partly offset by improved working capital management |
NET SALES
For the Healthcare business sector, we expect a stable organic development of net sales in 2020. Here we foresee significantly negative effects from the Covid-19 pandemic on the core business, particularly in the Fertility franchise. This decrease, in combination with an expected decline in Rebif® sales due to the intensive competitive situation in the market for multiple sclerosis treatments, cannot be offset by the continued positive growth contributions from General Medicine & Endocrinology
products largely attributable to performance in growth markets. We expect our new products to contribute significantly to organic sales. For 2020, we believe that both Mavenclad® and Bavencio® will each generate a further significant increase in sales, albeit not as high as assumed in the Annual Report for 2019 in view of the impact of the Covid-19 pandemic. The aforementioned divestment of Allergopharma will result in a slightly negative portfolio effect in the mid double-digit million range. Unfavorable foreign exchange developments in multiple
Quarterly Statement as of March 31, 2020 Outlook
growth markets are expected to lead to a neutral to moderately adverse foreign exchange effect.
EBITDA PRE
Based on the stated impacts of the Covid-19 pandemic, we forecast a slight organic decline in EBITDA pre of the Healthcare business sector in 2020 (previously solid organic growth) over the previous year.
The negative earnings effects in the core business owing to the expected decline in sales of Rebif® will now amplify due to the additional sales decline in the Fertility franchise. However, significant earnings contributions from our new products, particularly Mavenclad®, will still have a mitigating effect, albeit to a lower extent owing to the negative impact of the Covid-19 crisis. In addition, we will continue our rigorous cost management and strict pipeline prioritization. We therefore expect marketing and selling expenses as well as research and development costs to decline both in absolute terms and in percent of sales, with
research and development costs remaining heavily dependent on the development of clinical data and further expected study results. As of 2020, the upfront cash payment from the global strategic alliance with Pfizer for Bavencio® and Xalkori® as well as milestone payments will no longer be reflected in profit and loss. However, the upfront cash payment in the context of the global strategic alliance with GlaxoSmithKline plc (GSK) for the joint development and marketing of bintrafusp alfa will have a positive earnings effect in the low triple digit euro millions. The exact amount is dependent on the cost evolution and on reaching development milestones and will be recognized in other operating income. Moreover, the forecast for Healthcare includes effects from active portfolio management. Overall, the earnings contribution attributable to these one-time effects will be significantly below the prior-year figure. Furthermore, we expect foreign exchange effects to have a slightly to moderately adverse impact on EBITDA pre.
Life Science
FORECAST FOR THE LIFE SCIENCE BUSINESS SECTOR
| € million | Actual results 2019 | Forecast for 2020 | Key assumptions |
|---|---|---|---|
| Net sales | 6,864 | • Strong organic growth | |
| • Neutral to slightly negative foreign exchange effect | • All businesses contribute to the development | ||
| • Process Solutions remains the main driver of growth, followed by Applied Solutions | |||
| • Adverse foreign exchange impact due to exchange rate developments in multiple growth markets, almost offset by the U.S. dollar | |||
| EBITDA pre | 2,129 | • Strong organic earnings growth | |
| • Neutral to moderately adverse foreign exchange effect | • Organic earnings growth owing to the expected sales growth | ||
| • Adverse foreign exchange effect owing to exchange rate developments in multiple growth markets | |||
| Business free cash flow | 1,375 | Increase in the low percentage teens range | • Rise in EBITDA pre |
| • Improved management of working capital | |||
| • Offset by increase in capital spending on strategic projects |
NET SALES
For our Life Science business sector, we continue to assume strong organic growth of net sales in 2020 compared with the previous year. Our forecast of all business units making a positive contribution to organic growth remains unchanged. The Process Solutions business unit will remain the strongest driver of organic growth in 2020, followed by Applied Solutions and Research Solutions. As previously stated, we do not expect the acquisitions of FloDesign Sonics Inc. and BSSN Software GmbH to have a material portfolio effect. Negative foreign exchange effects in various growth markets will be almost offset by positive effects from the U.S. dollar. Consequently, we expect stable to slightly negative foreign exchange effects.
EBITDA PRE
For EBITDA pre of the Life Science business sector, we confirm our forecast of strong organic growth in fiscal 2020. The persistently dynamic demand trend will contribute to the organic growth of EBITDA pre. Within the Life Science business sector, in fiscal 2020 we expect stable to moderately adverse foreign exchange effects, driven by the development of various emerging market currencies.
Quarterly Statement as of March 31, 2020 Outlook
Performance Materials
FORECAST FOR THE PERFORMANCE MATERIALS BUSINESS SECTOR
| € million | Actual results 2019 | Forecast for 2020 | Key assumptions |
|---|---|---|---|
| Net sales | 2,574 | • Moderate to strong organic decline • Portfolio effect in the low to mid-thirties percentage range • Slightly positive foreign exchange effect | • Strong growth momentum in Semiconductor Solutions • Continued price decline in Liquid Crystals business • Significant decrease in Surface Solutions • Portfolio effect due to Versum Materials in the low to mid-thirties percentage range, no material portfolio effect from Intermolecular • Positive foreign exchange effect due to the trend of exchange rates in individual Asian growth markets and of the U.S. dollar |
| EBITDA pre | 803 | • Organic decline in the low to mid-teens percentage range • Portfolio effect in the low to mid-thirties percentage range • Moderately positive foreign exchange effect | • Growth in Semiconductor Solutions cannot offset price decline in Liquid Crystals or the significantly adverse impact of the Covid-19 pandemic despite strict cost discipline • Positive earnings contribution from Versum Materials in the low to mid-thirties percentage range leads to slight margin improvement • Planned realization of synergies of € 20 million from the integration of Versum Materials • Positive foreign exchange effect due to the trend of exchange rates in individual Asian growth markets and of the U.S. dollar |
| Business free cash flow | 641 | Increase with growth rates in the low twenties percentage range | Rise in EBITDA pre softened by higher capital spending |
NET SALES
For our Performance Materials business sector we forecast a moderate to strongly negative organic decline in net sales in 2020. For our Semiconductor Materials business, we continue to expect strong growth dynamics this year as stated in our previous forecast. By contrast, in addition to the continued price erosion owing price pressure common in the industry, our Liquid Crystals business is suffering from the adverse effects in connection with the Covid-19 pandemic. This slowdown in the dynamics of the global economy will also lead to significantly deteriorating business prospects for our Surface Solutions business in 2020. For Versum Materials, we expect a portfolio effect in the low to mid-thirties range in first three quarters of 2020. Moreover, the acquisition of Intermolecular closed on September 20, 2019. We do not consider the resulting portfolio effect to be material.
Due to the development of the euro against the U.S. dollar as well as the development of several currencies of Asian growth markets, we now project a slightly positive foreign exchange effect (previously slightly negative effect) for 2020.
EBITDA PRE
For our Performance Materials business sector, we expect the economic slowdown within the scope of the Covid-19 pandemic to have a significantly adverse impact on EBITDA pre. Good business performance in our Semiconductor Materials business and high cost discipline will not be able to compensate for this. Consequently, we expect that organic EBITDA pre will decline in the low to mid-teens percentage range in comparison with 2019. We estimate that the portfolio effect of Versum Materials will show total growth in the low to mid-thirties percentage range, which will improve the margin of the business slightly. This forecast includes the planned realization of synergies in the amount of around € 20 million.
Owing to changed foreign exchange assumptions, particularly for the euro-U.S. dollar and several Asian currencies, we assume a moderately positive foreign exchange effect.
Quarterly Statement as of March 31, 2020 Outlook
Corporate and Other
Due to the high level of uncertainty with respect to the further development of the Covid-19 pandemic, the forecast for Corporate and Other is also being made with a considerably
higher degree of uncertainty than normally. Overall, we forecast a slight increase in corporate costs in 2020 in comparison with the previous year. The forecast figures will be adversely affected mainly by currency hedging.
MERCK GROUP
Forecast for FY 2020
| € million | Net sales | EBITDA pre | Business free cash flow |
|---|---|---|---|
| Merck Group | ~16,800 to 17,800 • Slight to moderate organic growth • Portfolio effect in the mid single-digit percentage range • Exchange rate effect -2% to +1% | ~4,350 to 4,850 • Stable organic development • Positive portfolio effect in the mid single-digit percentage range • Slightly adverse foreign exchange effect of 0% to -3% | ~2,650 to 3,250 |
| Healthcare | • Organic stable • Adverse portfolio effect in the mid double-digit million range • Neutral to moderately adverse foreign exchange effect | • Organic slightly negative • Slightly to moderately adverse foreign exchange effect | Moderate decline |
| Life Science | • Strong organic growth • Neutral to slightly adverse foreign exchange effect | • Strong organic growth • Neutral to moderately adverse foreign exchange effect | Increase in the low percentage teens range |
| Performance Materials | • Moderate to strong organic decline • Portfolio effect in the low to mid-thirties percentage range • Slightly positive foreign exchange effect | • Organic decline in the low to mid-teens percentage range • Portfolio effect in the low to mid-thirties percentage range • Moderately positive foreign exchange effect | Increase with growth rates in the low twenties percentage range |
| Corporate and Other | - | Slightly higher than in 2019 | - |
EPS pre € 5.50 to € 6.35
Full-year FX assumption for 2020:
€ 1 = US$ 1.08 to US$ 1.12
Supplemental Financial Information
Quarterly Statement as of March 31, 2020 Supplemental Financial Information Consolidated Income Statement
Supplemental Financial Information
Consolidated Income Statement
| € million | Q1 2020 | Q1 2019 |
|---|---|---|
| Net sales | 4,370 | 3,746 |
| Cost of sales | -1,654 | -1,384 |
| Gross profit | 2,716 | 2,362 |
| Marketing and selling expenses | -1,059 | -1,091 |
| Administration expenses | -289 | -283 |
| Research and development costs | -579 | -527 |
| Impairment losses and reversals of impairment losses on financial assets (net) | 6 | -4 |
| Other operating income | 112 | 100 |
| Other operating expenses | -191 | -179 |
| Operating result (EBIT)¹ | 716 | 379 |
| Finance income | 14 | 16 |
| Finance costs | -112 | -129 |
| Profit before income tax | 617 | 266 |
| Income tax | -159 | -67 |
| Profit after tax from continuing operations | 458 | 199 |
| Profit after tax from discontinued operation | - | -10 |
| Profit after tax | 458 | 190 |
| thereof: attributable to Merck KGaA shareholders (net income) | 456 | 189 |
| thereof: attributable to non-controlling interests | 2 | 1 |
| Earnings per share (in €) | ||
| Basic | 1.05 | 0.43 |
| from continuing operations | 1.05 | 0.45 |
| from discontinued operation | - | -0.02 |
| Diluted | 1.05 | 0.43 |
| from continuing operations | 1.05 | 0.45 |
| from discontinued operation | - | -0.02 |
¹ Not defined by International Financial Reporting Standard (IFRS).
Quarterly Statement as of March 31, 2020 Supplemental Financial Information Statement of Comprehensive Income
Statement of Comprehensive Income
| € million | Q1 2020 | Q1 2019 |
|---|---|---|
| Profit after tax | 458 | 190 |
| Items of other comprehensive income that will not be reclassified to profit or loss in subsequent periods | ||
| Net defined benefit liability | ||
| Changes in remeasurement | 103 | -88 |
| Tax effect | -30 | 19 |
| Changes recognized in equity | 73 | -68 |
| Equity instruments | ||
| Fair value adjustments | -57 | -18 |
| Tax effect | - | - |
| Changes recognized in equity | -57 | -17 |
| 15 | -85 | |
| Items of other comprehensive income that may be reclassified to profit or loss in subsequent periods | ||
| Debt instruments | ||
| Fair value adjustments | - | - |
| Reclassification to profit or loss | - | - |
| Tax effect | - | - |
| Changes recognized in equity | - | - |
| Cash flow hedge reserve | ||
| Fair value adjustments | -47 | -38 |
| Reclassification to profit or loss | 22 | 25 |
| Reclassification to assets | - | - |
| Tax effect | 9 | 4 |
| Changes recognized in equity | -17 | -9 |
| Cost of cash flow hedge reserve | ||
| Fair value adjustments | 7 | 2 |
| Reclassification to profit or loss | 1 | - |
| Tax effect | -3 | - |
| Changes recognized in equity | 6 | 2 |
| Currency translation difference | ||
| Changes taken directly to equity | 231 | 346 |
| Reclassification to profit or loss | -1 | - |
| Changes recognized in equity | 230 | 346 |
| 219 | 339 | |
| Other comprehensive income | 235 | 254 |
| Comprehensive income | 693 | 444 |
| thereof: attributable to Merck KGaA shareholders | 692 | 441 |
| thereof: attributable to non-controlling interests | 1 | 2 |
| Comprehensive income | 693 | 444 |
| thereof: from continuing operations | 693 | 453 |
| thereof: from discontinued operation | - | -10 |
Quarterly Statement as of March 31, 2020 Supplemental Financial Information Consolidated Balance Sheet
Consolidated Balance Sheet
| € million | March 31, 2020 | Dec. 31, 2019 |
|---|---|---|
| Non-current assets | ||
| Goodwill | 17,376 | 17,141 |
| Other intangible assets | 9,089 | 9,175 |
| Property, plant and equipment | 6,110 | 6,213 |
| Other non-current financial assets | 692 | 738 |
| Other non-current receivables | 21 | 22 |
| Other non-current non-financial assets | 94 | 97 |
| Deferred tax assets | 1,348 | 1,421 |
| 34,730 | 34,808 | |
| Current assets | ||
| Inventories | 3,443 | 3,342 |
| Trade and other current receivables | 3,690 | 3,488 |
| Contract assets | 85 | 156 |
| Other current financial assets | 81 | 57 |
| Other current non-financial assets | 553 | 591 |
| Income tax receivables | 631 | 589 |
| Cash and cash equivalents | 1,530 | 781 |
| 10,013 | 9,003 | |
| Total assets | 44,743 | 43,811 |
| Total equity | ||
| Equity capital | 565 | 565 |
| Capital reserves | 3,814 | 3,814 |
| Retained earnings | 11,978 | 11,507 |
| Gains / losses recognized in equity | 2,200 | 1,980 |
| Equity attributable to Merck KGaA shareholders | 18,556 | 17,865 |
| Non-controlling interests | 44 | 48 |
| 18,600 | 17,914 | |
| Non-current liabilities | ||
| Non-current provisions for employee benefits | 3,060 | 3,194 |
| Other non-current provisions | 252 | 254 |
| Non-current financial debt | 10,137 | 8,644 |
| Other non-current financial liabilities | 44 | 43 |
| Other non-current non-financial liabilities | 90 | 93 |
| Deferred tax liabilities | 1,795 | 1,828 |
| 15,379 | 14,056 | |
| Current liabilities | ||
| Current provisions for employee benefits | 82 | 110 |
| Other current provisions | 822 | 823 |
| Current financial debt | 3,717 | 4,550 |
| Other current financial liabilities | 1,021 | 1,127 |
| Trade and other current payables | 1,807 | 2,054 |
| Refund liabilities | 626 | 565 |
| Income tax liabilities | 1,463 | 1,402 |
| Other current non-financial liabilities | 1,225 | 1,211 |
| 10,764 | 11,842 | |
| Total equity and liabilities | 44,743 | 43,811 |
1 Previous year's figures have been adjusted, see "Effects of disclosure changes".
Quarterly Statement as of March 31, 2020 Supplemental Financial Information Consolidated Cash Flow Statement
Consolidated Cash Flow Statement
| € million | Q1 2020 | Q1 2019 |
|---|---|---|
| Profit after tax | 458 | 190 |
| Depreciation / amortization / impairment losses / reversals of impairment losses | 431 | 474 |
| Changes in inventories | -129 | -146 |
| Changes in trade accounts receivable | -254 | -15 |
| Changes in trade accounts payable / refund liabilities | 27 | -17 |
| Changes in provisions | 16 | 100 |
| Changes in other assets and liabilities | -23 | -89 |
| Neutralization of gains / losses on disposals of assets | -35 | 1 |
| Other non-cash income and expenses | 24 | -5 |
| Net cash flows from operating activities | 516 | 493 |
| thereof: from discontinued operation | - | -5 |
| Payments for investments in intangible assets | -18 | -9 |
| Payments from the disposal of intangible assets | 6 | 17 |
| Payments for investments in property, plant and equipment | -341 | -209 |
| Payments from the disposal of property, plant and equipment | 3 | 3 |
| Payments for investments in financial assets | -26 | -37 |
| Payments for acquisitions less acquired cash and cash equivalents | -1 | - |
| Payments from the disposal of other financial assets | 31 | 7 |
| Payments for the purchase of non-financial assets | - | -100 |
| Payments from other divestments | 56 | - |
| Net cash flows from investing activities | -288 | -329 |
| thereof: from discontinued operation | - | - |
| Dividend payment to Merck KGaA shareholders | -5 | - |
| Dividend payments to E. Merck KG | -58 | -61 |
| Payments from new borrowings from E. Merck KG | - | 9 |
| Repayments of financial debt to E. Merck KG | -34 | - |
| Payments from the issuance of bonds | 1,490 | - |
| Repayments of bonds | -2,041 | - |
| Changes in other current and non-current financial debt | 1,189 | 49 |
| Net cash flows from financing activities | 542 | -3 |
| thereof: from discontinued operation | - | - |
| Changes in cash and cash equivalents | 770 | 160 |
| Changes in cash and cash equivalents due to currency translation | -20 | 9 |
| Cash and cash equivalents at the beginning of the reporting period | 781 | 2,170 |
| Cash and cash equivalents as of March 31 (consolidated balance sheet) | 1,530 | 2,340 |
Quarterly Statement as of March 31, 2020 Supplemental Financial Information Consolidated Statement of Changes in Net Equity
Consolidated Statement of Changes in Net Equity
| Comprehensive income | Profit transfer to / from E. Merck KG including changes in reserves | Transactions with no change of control | Change in scope of consolidation / Other | March 31, 2020 | |||
|---|---|---|---|---|---|---|---|
| Jan. 1, 2020 | Profit after tax | Gains / losses recognized in equity | |||||
| Equity capital | 565 | - | - | - | - | - | 565 |
| General partner's equity | 397 | - | - | - | - | - | 397 |
| Subscribed capital | 168 | - | - | - | - | - | 168 |
| Capital reserves | 3,814 | - | - | - | - | - | 3,814 |
| Retained earnings | 11,507 | 456 | 16 | - | -1 | - | 11,978 |
| Retained earnings / net retained profit | 13,158 | 456 | - | - | -1 | -21 | 13,592 |
| Remeasurement of defined benefit plans | -1,729 | - | 73 | - | - | 21 | -1,636 |
| Fair value reserve for equity instruments | 79 | - | -57 | - | - | - | 21 |
| Gains / losses recognized in equity | 1,980 | - | 220 | - | - | - | 2,200 |
| Fair value reserve for debt instruments | -1 | - | - | - | - | - | -1 |
| Cash flow hedge reserve | -118 | - | -17 | - | - | - | -135 |
| Cost of cash flow hedge reserve | -33 | - | 6 | - | - | - | -27 |
| Currency translation difference | 2,131 | - | 231 | - | - | - | 2,363 |
| Equity attributable to Merck KGaA shareholders | 17,865 | 456 | 236 | - | -1 | - | 18,556 |
| Non-controlling interests | 48 | 2 | -1 | -5 | - | - | 44 |
| Total equity | 17,914 | 458 | 235 | -5 | -1 | - | 18,600 |
Quarterly Statement as of March 31, 2020 Supplemental Financial Information Consolidated Statement of Changes in Net Equity
| € million | Comprehensive income | Profit transfer to / from E. Merck KG including changes in reserves | Transactions with no change of control | Change in scope of consolidation / Other | March 31, 2019 | ||
|---|---|---|---|---|---|---|---|
| Jan. 1, 2019 | Profit after tax | Gains / losses recognized in equity | |||||
| Equity capital | 565 | - | - | - | - | - | 565 |
| General partner's equity | 397 | - | - | - | - | - | 397 |
| Subscribed capital | 168 | - | - | - | - | - | 168 |
| Capital reserves | 3,814 | - | - | - | - | - | 3,814 |
| Retained earnings | 11,192 | 189 | -85 | - | - | - | 11,295 |
| Retained earnings / net retained profit | 12,525 | 189 | - | - | - | 1 | 12,714 |
| Remeasurement of defined benefit plans | -1,340 | - | -68 | - | - | - | -1,408 |
| Fair value reserve for equity instruments | 7 | - | -17 | - | - | -1 | -12 |
| Gains / losses recognized in equity | 1,629 | - | 338 | - | - | - | 1,967 |
| Fair value reserve for debt instruments | -1 | - | - | - | - | - | - |
| Cash flow hedge reserve | -128 | - | -9 | - | - | - | -137 |
| Cost of cash flow hedge reserve | -33 | - | 2 | - | - | - | -31 |
| Currency translation difference | 1,790 | - | 345 | - | - | - | 2,135 |
| Equity attributable to Merck KGaA shareholders | 17,200 | 189 | 253 | - | - | - | 17,640 |
| Non-controlling interests | 33 | 1 | 1 | - | - | - | 35 |
| Total equity | 17,233 | 190 | 254 | - | - | - | 17,676 |
Quarterly Statement as of March 31, 2020 Supplemental Financial Information Informationen by Business Sector
Informationen by Business Sector
| Healthcare | Life Science | Performance Materials | Konzernkosten und Sonstiges | Konzern | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| € million | Q1 2020 | Q1 2019 | Q1 2020 | Q1 2019 | Q1 2020 | Q1 2019 | Q1 2020 | Q1 2019 | Q1 2020 | Q1 2019 |
| Net sales¹ | 1,701 | 1,481 | 1,769 | 1,661 | 900 | 604 | - | - | 4,370 | 3,746 |
| Intersegment sales | - | - | 5 | 4 | - | - | -5 | -4 | - | - |
| Operating result (EBIT)² | 422 | 128 | 345 | 313 | 116 | 95 | -168 | -158 | 716 | 379 |
| Depreciation and amortization | 79 | 174 | 196 | 193 | 134 | 62 | 22 | 17 | 430 | 447 |
| Impairment losses | 1 | 27 | - | - | - | - | - | - | 1 | 27 |
| Reversals of impairment losses | - | - | - | - | - | - | - | - | - | - |
| EBITDA² | 501 | 329 | 541 | 507 | 251 | 157 | -146 | -140 | 1,148 | 853 |
| Adjustments² | -29 | 3 | 11 | 9 | 35 | 35 | 17 | 28 | 34 | 76 |
| EBITDA pre (Segment result)² | 472 | 332 | 553 | 516 | 286 | 193 | -129 | -112 | 1,181 | 929 |
| EBITDA pre margin (in % of net sales)² | 27.8 | 22.4 | 31.2 | 31.0 | 31.7 | 31.9 | - | - | 27.0 | 24.8 |
| Assets by business sector³ | 7,316 | 7,560 | 21,835 | 21,600 | 10,917 | 10,784 | 4,675 | 3,867 | 44,743 | 43,811 |
| Liabilities by business sector³ | -2,905 | -3,055 | -1,424 | -1,519 | -675 | -716 | -21,138 | -20,608 | -26,143 | -25,897 |
| Investments in property, plant and equipment⁴ | 155 | 98 | 107 | 76 | 61 | 14 | 17 | 22 | 341 | 209 |
| Investments in intangible assets⁴ | 8 | 6 | 8 | 1 | 1 | 1 | 1 | 1 | 18 | 9 |
¹ Excluding intersegment sales.
² Not defined by International Financial Reporting Standards (IFRS).
³ Figures for the reporting period ending on March 31, 2020; previous-year figures as of December 31, 2019.
⁴ As reported in the consolidated cash flow statement.
| € million | Q1 2020 | Q1 2019 |
|---|---|---|
| EBITDA pre of the operating businesses¹ | 1,310 | 1,042 |
| Corporate and Other | -129 | -112 |
| EBITDA pre of the Merck Group¹ | 1,181 | 929 |
| Depreciation / amortization / impairment losses / reversals of impairment losses | -431 | -474 |
| Adjustments¹ | -34 | -76 |
| Operating result (EBIT)¹ | 716 | 379 |
| Financial result | -98 | -113 |
| Profit before income tax | 617 | 266 |
¹ Not defined by International Financial Reporting Standards (IFRS).
| € million | Q1 2020 | Q1 2019 |
|---|---|---|
| Restructuring expenses | -15 | -61 |
| Integration expenses / IT expenses | -22 | -13 |
| Gains (+) / losses (-) on the divestment of businesses | 30 | -2 |
| Acquisition-related adjustments | -19 | - |
| Other adjustments | -8 | 1 |
| Adjustments before impairment losses / reversals of impairment losses¹ | -34 | -76 |
| Impairment losses | -2 | - |
| Reversals of impairment losses | - | - |
| Adjustments (total)¹ | -36 | -76 |
¹ Not defined by International Financial Reporting Standards (IFRS).
Quarterly Statement as of March 31, 2020 Supplemental Financial Information Informationen by Business Sector
In comparison with the year-earlier quarter, restructuring expenses declined from € 61 million to € 15 million. Lower expenses were incurred for both the "Bright Future" transformation program in the Performance Materials business sector (€ 0 million; January-March 2019: € 34 million) and for the transfer of various activities to the Shared Service organization (€ 3 million; January-March 2019: € 25 million).
The gain on the divestment of the allergy business (€ 37 million) has been recorded under “Gains on the divestment of businesses”. The 2019 takeover of Versum Materials, Inc., USA, led to acquisition-related adjustments amounting to € 21 million (January-March 2019: € 0 million).
The following tables present a more detailed breakdown of net sales from contracts with customers.
| € Million / in % | Q1 2020 | |||||||
|---|---|---|---|---|---|---|---|---|
| Net sales by nature of the products | Healthcare | Life Science | Performance Materials | Group | ||||
| Goods | 1,666 | 98% | 1,583 | 90% | 813 | 90% | 4,062 | 93% |
| Equipment / hardware | 2 | - | 71 | 4% | 64 | 7% | 136 | 3% |
| Services | 14 | 1% | 112 | 6% | 23 | 3% | 149 | 4% |
| License income | - | - | 3 | - | - | - | 4 | - |
| Commission income | 3 | - | - | - | - | - | 3 | - |
| Income from co-commercialization agreements | 16 | 1% | - | - | - | - | 16 | - |
| Total | 1,701 | 100% | 1,769 | 100% | 900 | 100% | 4,370 | 100% |
| Net sales by region (customer location) | ||||||||
| Europe | 622 | 37% | 614 | 35% | 74 | 8% | 1,310 | 30% |
| North America | 370 | 22% | 644 | 36% | 136 | 15% | 1,150 | 26% |
| Asia-Pacific (APAC) | 442 | 26% | 422 | 24% | 672 | 75% | 1,536 | 35% |
| Latin America | 177 | 10% | 66 | 4% | 9 | 1% | 252 | 6% |
| Middle East and Africa (MEA) | 89 | 5% | 23 | 1% | 9 | 1% | 121 | 3% |
| Total | 1,701 | 100% | 1,769 | 100% | 900 | 100% | 4,370 | 100% |
| € Million / in %Net sales by nature of the products | Q1 2019 | |||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Healthcare | Life Science | Performance Materials | Group | |||||
| Goods | 1,455 | 98% | 1,450 | 88% | 604 | 100% | 3,509 | 94% |
| Equipment / hardware | 3 | - | 105 | 6% | - | - | 107 | 3% |
| Services | 11 | 1% | 102 | 6% | 1 | - | 113 | 3% |
| License income | - | - | 3 | - | - | - | 3 | - |
| Commission income | 4 | - | 1 | - | - | - | 5 | - |
| Income from co-commercialization agreements | 8 | 1% | - | - | - | - | 8 | - |
| Total | 1,481 | 100% | 1,661 | 100% | 604 | 100% | 3,746 | 100% |
| Net sales by region (customer location) | ||||||||
| Europe | 538 | 36% | 581 | 35% | 58 | 10% | 1,177 | 32% |
| North America | 305 | 21% | 575 | 35% | 54 | 9% | 934 | 25% |
| Asia-Pacific (APAC) | 389 | 26% | 418 | 25% | 480 | 79% | 1,287 | 34% |
| Latin America | 157 | 11% | 65 | 4% | 9 | 1% | 230 | 6% |
| Middle East and Africa (MEA) | 92 | 6% | 22 | 1% | 3 | 1% | 118 | 3% |
| Total | 1,481 | 100% | 1,661 | 100% | 604 | 100% | 3,746 | 100% |
Quarterly Statement as of March 31, 2020 Supplemental Financial Information Informationen by Business Sector
HEALTHCARE
| € million / in % | Q1 2020 | Q1 2019 | ||
|---|---|---|---|---|
| Oncology | 260 | 15% | 229 | 16% |
| thereof: Erbitux® | 211 | 12% | 199 | 13% |
| thereof: Bavencio® | 33 | 2% | 22 | 1% |
| Neurology & Immunology | 418 | 25% | 342 | 23% |
| thereof: Rebif® | 295 | 17% | 299 | 20% |
| thereof: Mavenclad® | 123 | 7% | 43 | 3% |
| Fertility | 278 | 16% | 287 | 19% |
| thereof: Gonal-f® | 167 | 10% | 168 | 11% |
| General Medicine & Endocrinology | 680 | 40% | 570 | 38% |
| thereof: Glucophage® | 234 | 14% | 180 | 12% |
| thereof: Concor® | 150 | 9% | 117 | 8% |
| thereof: Euthyrox® | 114 | 7% | 91 | 6% |
| thereof: Saizen® | 65 | 4% | 55 | 4% |
| Other | 65 | 4% | 52 | 4% |
| Total | 1,701 | 100% | 1,481 | 100% |
LIFE SCIENCE
| € million / in % | Q1 2020 | Q1 2019 | ||
|---|---|---|---|---|
| Process Solutions | 802 | 45% | 700 | 42% |
| Research Solutions | 546 | 31% | 542 | 33% |
| Applied Solutions | 421 | 24% | 419 | 25% |
| Total | 1,769 | 100% | 1,661 | 100% |
PERFORMANCE MATERIALS
| € million / in % | Q1 2020 | Q1 2019 | ||
|---|---|---|---|---|
| Display Solutions | 304 | 34% | 331 | 55% |
| Semiconductor Solutions | 485 | 54% | 152 | 25% |
| Surface Solutions | 111 | 12% | 121 | 20% |
| Other | - | - | - | - |
| Total | 900 | 100% | 604 | 100% |
Quarterly Statement as of March 31, 2020 Supplemental Financial Information Significant events during the reporting period
Significant events during the reporting period
IMPACT OF THE COVID-19 PANDEMIC ON THE FINANCIAL STATEMENTS
Merck is continuously reviewing the potential impact of the Covid-19 pandemic on the financial statements of the Group. To date, reductions in orders received due to Covid-19 have mainly been recorded in the Fertility franchise within the Healthcare business sector as well as in the Surface Solutions and Display Solutions business units within the Performance Materials business sector. Additionally, the Research Solutions business unit of the Life Science business sector saw a negative impact from weaker demand from academic laboratories in connection with Covid-19. Apart from the resulting sales declines, further impacts in the reporting period were immaterial; primarily owing to higher logistic expenses and a slight increase in loss allowances for trade accounts receivable. Moreover, contractually agreed payment terms were extended in individual cases.
Further information can be found under "Course of business and economic position". An analysis of the extent to which material impairments of non-financial assets such as goodwill, other intangible assets as well as property, plant and equipment or inventories could be necessary as a result of the Covid-19 pandemic is underway. More information on the expected impact of the Covid-19 pandemic on fiscal 2020 can be found under "Outlook".
AGREEMENT TO DIVEST THE ALLERGOPHARMA ALLERGY BUSINESS
On February 19, 2020, Merck signed an agreement to divest its Allergopharma allergy business to Dermapharm Holding SE, Grünwald, Germany. Following regulatory approval and the satisfaction of other customary closing conditions, the transaction closed on March 31, 2020. Only the transfer of the minor business in China is expected for the second half of 2020.
Allergopharma is a leader in allergen-specific immunotherapy of type 1 allergies. Allergopharma products are currently available in 18 markets worldwide. The transaction encompasses the Allergopharma business in Europe and Asia, with the broad portfolio of therapeutic and diagnostic products
as well as the production site in Reinbek near Hamburg (Germany). An existing adrenaline autoinjector development project for the treatment of anaphylactic reactions is not part of the transaction and will remain with Merck. As of March 31, 2020, after the deduction of cash and cash equivalents Merck received € 56 million, which was disclosed in the reporting period under cash flows from investing activities in the cash flow statement. Because the purchase price adjustments have not been completed, it has not yet been possible to determine the final purchase price.
In the opinion of the Executive Board, the preconditions for classification as a disposal group pursuant to IFRS 5 were only met once the agreement to divest the Allergopharma business had been signed.
ACQUISITION OF VERSUM MATERIALS, INC., USA, IN 2019
On October 7, 2019, Merck announced the successful closing of the acquisition of Versum Materials, Inc., USA, ("Versum"). The purchase price in accordance with IFRS 3 was around € 5.2 billion.
Versum is one of the world's leading suppliers of innovation-driven, high-purity process chemicals, gases and equipment for semiconductor manufacturing. The company reported annual sales of approximately € 1.2 billion in fiscal 2018, has approximately 2,300 employees, and operates 14 manufacturing and seven research and development facilities throughout Asia and North America. The legacy Versum business is being integrated into the Semiconductor Solutions business unit within the Performance Materials business sector. The merger is expected to transform Merck into a leading provider of electronic materials for the semiconductor and display industries.
Intangible assets represented the vast majority of the fair values of the acquired net assets. The finalization of the purchase price allocation is still underway.
More information on this company acquisition can be found under "Acquisition and divestments" in the Notes to the Consolidated Financial Statements of the Annual Report for 2019.
Quarterly Statement as of March 31, 2020 Supplemental Financial Information Subsequent events
Subsequent events
Subsequent to the balance sheet date, no events of special importance occurred that could have a material impact on the net assets, financial position or results of operations.
Quarterly Statement as of March 31, 2020 Supplemental Financial Information Effects of disclosure changes
Effects of disclosure changes
CHANGE IN BALANCE SHEET DISCLOSURE OF PROVISIONS FOR EMPLOYEE BENEFITS
To increase the comparability and the further harmonization with the requirements of the IFRS taxonomy, with effect from January 1, 2020 Merck adapted the disclosure of provisions and liabilities for employee benefits.
Provisions for employee benefits of € 237 million previously included in other non-current provisions were reclassified to provisions for pensions and other post-employment benefits and this item was renamed "non-current provisions for employee benefits".
Current liabilities were expanded to include "Current provisions for employee benefits". In connection with this reclassification, other current provisions correspondingly decreased by € 110 million as of January 1, 2020.
Darmstadt, May 13, 2020
S. Zurek
Stefan Oschmann
Udit Batra
Belén Garijo
Kai Beckmann
Marcus Kuhnert
FINANCIAL CALENDAR
for 2020 / 2021
May
5/28/2020
Annual General Meeting
March
3/4/2021
Annual Press Conference
August
8/6/2020
Half-yearly Financial Report
April
4/23/2021
Annual General Meeting
November
11/12/2020
Quarterly Statement Q3
May
5/12/2021
Quarterly Statement Q1
Published on May 14, 2020
by Merck KGaA, Group Communications
Frankfurter Str. 250, 64293 Darmstadt, Germany
Telephone: +49 6151 72-0
Fax: +49 6151 72-5577
E-Mail: [email protected]
Website: www.merckgroup.com
TYPESETTING + LAYOUT
typowerkstatt Dieter Thomas Schwarz, Darmstadt