Merck Confirms Guidance for 2022 and Delivers Strong Organic Growth in Q3
Merck continued to grow despite a challenging external operating environment
Group sales increased by 16.8% to € 5,806 million. The “Big 3” – Process Solutions and Life Science Services, new Healthcare products as well as Semiconductor Solutions – were the key drivers of the strong, 7.1% organic increase in sales. Despite higher costs for raw materials, energy and logistics, EBITDA pre rose organically by 7.5% to € 1,810 million. Higher earnings in the Life Science and Healthcare business sectors contributed to this increase in EBITDA pre.
Exterior view of the Merck Group headquarters in Darmstadt, Germany
Merck KGaA
For fiscal 2022, Merck confirms the mid-point of the absolute ranges for sales, EBITDA pre and EPS pre for the Group level. The company has raised its expectation for organic growth of EBITDA pre of the Life Science business sector yet is lowering it for the Electronics business sector.
“Despite the ongoing turbulence in our external operating environment, we’ve demonstrated our resilience and delivered strong organic growth in sales and EBITDA pre in the third quarter of 2022,” said Belén Garijo, Chair of the Executive Board and CEO of Merck. “All three of our business sectors are well-positioned. In Life Science, the core business delivered double-digit growth, more than offsetting the expected decline in pandemic-related sales. The new products and the established portfolio in Healthcare performed strongly. And in Electronics, the renewed double-digit growth of Semiconductor Solutions justifies our confidence in this business.”
Strong organic growth of sales and EBITDA pre
Merck increased Group net sales by 16.8% to € 5,806 million in the third quarter of 2022. The strong organic sales gain of 7.1% was once again fueled by the “Big 3” businesses. Foreign exchange effects of 9.0% had a favorable influence on sales growth. This was particularly attributable to the development of the U.S. dollar and the Chinese renminbi. The acquisition of the biopharmaceutical contract development and manufacturing organization Exelead, Inc. USA (Exelead) was responsible for a portfolio-related sales increase of € 29 million or 0.6%.
EBITDA pre, the most important financial indicator used to steer operating business, soared by 16.7% to € 1,810 million. This key figure grew organically by 7.5%, driven by the Life Science and Healthcare business sectors. EBITDA pre was favorably influenced by foreign exchange effects of 8.8% and a portfolio effect of 0.5% from the acquisition of Exelead.
Relative to net sales, the EBITDA pre margin was 31.2%. Earnings per share pre rose by 19.6% to € 2.68.
“We expect continued challenges in our external operating environment throughout the rest of this year and into 2023. Yet, we once again confirm our mid-term objective of delivering sales of € 25 billion by 2025. We are well-positioned to grow further as a leading science and technology company,” said Belén Garijo.
In the third quarter of 2022, Merck invested further in the growth of all three business sectors and advanced innovations in science and technology:
- Life Science: Merck is investing € 130 million to expand manufacturing capacities for single-use assemblies in Molsheim, France. In Shanghai, China, the company opened a € 29 million Biologics Testing Center in order to meet growing local demand for viral clearance testing services.
- Healthcare: Merck presented strong data from Phase II clinical trials for xevinapant (head and neck cancer) as well as evobrutinib (multiple sclerosis).
- Merck entered into a collaboration agreement including a licensing option with Nerviano Medical Sciences S.r.l. (NMS), which focuses on the discovery and development of oncology drugs. The agreement relates to NMS-293, a PARP1 inhibitor (poly (ADP-Ribose) polymerase-1) that could potentially be used to treat cancer.
- Electronics: Merck signed an agreement to acquire the chemical business of Mecaro Co. Ltd., a Korean-based supplier to the semiconductor industry. In Gernsheim, Germany, the company commissioned its first fully automated unit for the digital color measurement of its pigment products.
Life Science: Double-digit growth in the core business more than offsets expected decline in pandemic-related demand
The Life Science business sector increased net sales organically by 8.7% in the third quarter of 2022 compared with the year-earlier quarter. This was mainly driven by mid-teens percentage growth of the core business amid an expected further decline in pandemic-related demand. Including currency tailwinds of 9.2% and a portfolio effect of 1.3% from the acquisition of Exelead, net sales of the business sector grew by 19.2% to € 2,681 million.
Life Science delivered EBITDA pre of € 976 million, or 18.6% more than in the year-earlier quarter, also thanks to further pricing adjustments. The increase was attributable to organic growth of 10.8%, foreign exchange effects of 6.9% and a portfolio effect of 0.9% from the acquisition of Exelead. The EBITDA pre margin was 36.4%.
Healthcare: New products continue to drive growth, complemented by positive contribution from established portfolio
Healthcare sales showed strong organic growth of 8.7% in the third quarter of 2022. Foreign exchange effects made a positive contribution of 8.2% to the sales development. Overall, sales amounted to € 2,089 million, an increase of 16.9% compared with the year-earlier quarter.
New Healthcare products were once again the main drivers of sales growth: In the Oncology franchise, the immuno-oncology drug Bavencio saw an organic sales increase of 51.0 % while sales of the portfolio oncology medicine Erbitux grew by 13.5%. Sales of Mavenclad for the treatment of relapsing multiple sclerosis grew organically by 9.8%. Apart from recently launched products, the established portfolio also contributed strongly to sales growth.
In the third quarter of 2022, the Healthcare business sector recorded EBITDA pre of € 711 million, an increase of 31.4%. Organically, EBITDA pre grew by 11.0%. Foreign exchange effects contributed 20.4%. The EBITDA pre margin of Healthcare was 34.0%.
Electronics: Strong performance of Semiconductor Solutions; further decline in Display Solutions
The Electronics business sector generated sales of € 1,036 million in the third quarter of 2022, representing an increase of 10.6% compared with the year-earlier quarter. Organically, sales increased by 0.4%. Positive foreign exchange effects contributed 10.2 % to the sales growth of Electronics.
The Semiconductor Solutions business unit, one of the “Big 3” businesses of Merck, achieved organic sales growth of 14.8%. On the other hand, the Display Solutions business unit recorded a sales decline of –32.0% organically due to low demand.
EBITDA pre of Electronics increased by 1.6% to € 302 million. Higher costs for raw materials, energy and logistics had a significant negative impact. An organic decline of –14.8% was more than offset by positive foreign exchange effects of 16.5%. The EBITDA pre margin of the business sector was 29.1% in the third quarter of 2022.
Fiscal 2022: forecast for absolute figures at Group level further specified
For fiscal 2022, Merck confirms and further specifies its forecast for the absolute figures for sales, EBITDA pre and EPS pre at Group level. The forecast is:
- Net sales: ~€ 22.0 billion to € 22.9 billion (previously: ~€ 21.9 billion to € 23.0 billion)
- EBITDA pre: ~€ 6.80 billion to € 7.20 billion (previously: ~€ 6.75 billion to € 7.25 billion)
- EPS pre: ~€ 9.90 to € 10.70 (previously: ~€ 9.85 to € 10.75)
For the Life Science business sector, Merck now expects organic growth of EBITDA pre of 8% to 11% (previously: 7% to 10%), due to slightly lower costs. For Electronics, Merck now expects EBITDA pre to decrease organically by –10% to –7% (previously: 0% to +3%), mainly due to significantly lower capacity utilization at customers served by Display Solutions. This is also the main reason for the lower expectation for organic sales growth in Electronics of 2% to 5% (previously: 5% to 8%).
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