Merck registers an increase of 16.7 per cent in net sales

Merck recently announced its financial results, reporting a net sales increased by 16.7 per cent to €4.4 billion, compared to the year-earlier quarter. EBITDA pre, the company’s most important earnings indicator, rose by 27.2 per cent to € 1.2 billion. The COVID-19 crisis, which has meanwhile become a pandemic, only had a moderate impact in the first quarter of 2020. However, the company expects the effects to amplify in the coming months and has also taken this into account in its forecast for fiscal 2020. For this year, Merck expects Group net sales of between € 16.8 billion and € 17.8 billion as well as EBITDA pre in a range of € 4.35 billion to € 4.85 billion. 

“In recent weeks, many companies have throttled or even stopped their production activities for understandable reasons. Many parts of our business are essential, so we of course continued our operations. Patients, researchers and customers around the world rely on us. The good business results in the first quarter show that we have successfully mastered the crisis so far. With our three innovation-driven business sectors, we are also well positioned during economically difficult times. In 2018, we had already begun to adapt our indirect costs. Our products and solutions contribute to the global COVID-19 response in many ways. We are proud of this, and it is what drives us,” explained Stefan Oschmann, Chairman of the Executive Board and CEO of Merck. “We will continue to do everything we can to deal with the impact of COVID-19 in the best possible way. Our top priority will of course still be the safety and health of our employees as well as business continuity.” 

In comparison with the year-earlier quarter, Group net sales increased by 16.7 per cent to € 4.4 billion in the first quarter. All business sectors contributed to this. Organically, Group sales grew by 7.6 per cent, driven by the Healthcare and Life Science business sectors. Foreign exchange effects accounted for 0.6 per cent. Owing to portfolio effects, Group sales increased by 8.4 per cent, primarily due to the acquisition of Versum Materials in autumn 2019. 

EBITDA pre rose in the first quarter by 27.2 per cent and thus far more strongly than sales. Merck thus achieved profitable growth. The organic increase in EBITDA pre amounted to 14.5 per cent and was supported by positive foreign exchange effects of 2 per cent. The acquisitions of Versum Materials and Intermolecular improved EBITDA pre by 10.7 per cent. The operating result EBIT advanced by 89.0 per cent to € 716 million. Net income soared by more than 100 per cent to € 456 million. In the first quarter, earnings per share pre were € 1.50, an increase of 32.7 per cent over the year-earlier quarter. Merck had 57,451 employees worldwide on March 31, 2020. 

MS medicine Mavenclad and products from General Medicine & Endocrinology drive organic sales growth of Healthcare 

At € 1.7 billion, net sales of the Healthcare business sector increased in the first quarter by 14.9 per cent over the year-earlier quarter. Organic growth was 15.3 per cent, the foreign exchange impact was –0.4 per cent. The main drivers of organic growth were especially the medicine Mavenclad for the treatment of certain forms of multiple sclerosis (MS), as well as products from the General Medicine & Endocrinology (GM&E) franchise. Sales of Mavenclad rose to € 123 million, also due to marketing approval in the United States in late March 2019. Products from GM&E, including the diabetes treatment Glucophage and the cardiovascular medicine Concor, generated organic sales growth of 20.9 per cent, also due to advance effects in the course of the COVID-19 pandemic. By contrast, sales of the Fertility franchise declined organically by –3.5 per cent. Lower demand in China, caused by the impacts of the 

COVID-19 pandemic, especially the lockdown there, were largely compensated for by positive developments in other regions. 

In the first quarter, EBITDA pre of Healthcare amounted to € 472 million, an increase of 42.2 per cent over the year-earlier quarter. 

Process Solutions drives growth of Life Science 

The Life Science business sector increased its net sales to € 1.8 billion in the first quarter, which was 6.5 per cent more than in the year-earlier quarter. Solid organic sales growth of 5.6 per cent was further strengthened by exchange rate effects of 0.9 per cent. Organic growth was fueled by the Process Solutions business unit, which saw sales grow organically by 13.2 per cent in the first quarter. By contrast, in view of the COVID-19 pandemic and the resulting closures of academic research facilities and further restrictions of economic life, particularly in Asia, the Applied Solutions and Research Solutions business units could not generate organic sales growth. 

In the first quarter, EBITDA pre of Life Science amounted to € 553 million, rising by 7.2 per cent over the year-earlier quarter. 

Performance Materials sees growth in the Semiconductor Solutions business 

Net sales of the Performance Materials business sector rose by 49.0 per cent to € 900 million in the first quarter, mainly owing to portfolio effects of 52.1 per cent as well as positive foreign exchange effects of 2.4 per cent. Organically, sales declined by –5.4 per cent, primarily as a result of business performance in the Display Solutions and Surface Solutions business units. 

In the first quarter, the Display Solutions business unit saw an organic sales decline of –10.5 per cent. This also reflects to a minor extent initial negative effects of the 

COVID-19 pandemic. The original Semiconductor Solutions business unit prior to the acquisitions of Versum Materials and Intermolecular in autumn 2019 delivered strong organic growth of 8.7 per cent in the first quarter. Sales of the Surface Solutions business unit declined in the first quarter organically by –9.1 per cent, mainly owing to weaker demand from the automotive and cosmetic industries primarily attributable to uncertainty in the context of the COVID-19 pandemic. 

EBITDA pre of Performance Materials rose in the first quarter by 48.3 per cent to € 286 million, chiefly due to the named acquisitions. 

Forecast for the full year 2020 reflects the COVID-19 pandemic 

In view of the COVID-19 pandemic and in deviation from its first qualitative forecast in early March, Merck now assumes a significant burden on global economic growth, which will affect all business sectors, particularly Healthcare and Performance Materials. Due to the high level of uncertainty with respect to the further development of the COVID-19 pandemic, the company’s forecast is being made with a considerably higher degree of uncertainty than normally. The forecast is based on the following assumptions: For China, Merck assumes 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. For Europe and the United States, the company does not expect the pandemic to peak until the second quarter; the outbreak in these markets should normalize by the end of the third quarter. Moreover, the following forecast does not assume a potential second disease wave in the named regions. 

Based on these assumptions, Merck expects for the full year 2020 a slight to moderate organic net sales increase over the previous year. The company still expects the portfolio effect of the acquisition of Versum Materials, which is being reported for the first three quarters, to be in the mid single-digit percentage range. Overall, Merck forecasts a slightly unfavorable to stable foreign exchange development of –2 per cent to +1 per cent attributable to the currencies of numerous growth markets, especially in Latin America. This effect is expected to be mitigated by a favorable development of the euro-U.S. dollar exchange rate, which Merck sees in a range of 1.08 to 1.12. Overall, Merck therefore forecasts Group net sales of € 16.8 billion to € 17.8 billion for 2020. 

For 2020, Group EBITDA pre is expected to be in a range of between € 4.35 billion and € 4.85 billion. Owing to strong restrictions of economic life and declining income in the context of the COVID-19 pandemic with correspondingly adverse effects on the businesses, Merck forecasts a merely stable organic development. The portfolio effect from the acquisition of Versum Materials, which the company still expects will be in the mid single-digit percentage range, should lead to a slight improvement in the Group margin. The forecast foreign exchange development is likely to slightly lower Group EBITDA pre by between –3 per cent and 0 per cent in comparison with the previous year.