In the second quarter of 2023, Merck leveraged its diversified portfolio with three business sectors to navigate a challenging market environment.
Financial results of Q2 2023
Net sales decrease organically by −1.1% to € 5.3 billion
EBITDA pre down organically by −7.0% to € 1.6 billion
Healthcare business sector increases net sales and earnings
Weaker market environment in Life Science and Electronics
Negative foreign exchange impact stronger than in Q1 2023
Updated forecast for fiscal 2023
Net sales: Organic development between −2% and +2 %
Net sales excluding Covid-19 business: Organic growth of +1% to +5%
EBITDA pre: Organic decline of −9% to −3%
Foreign exchange impact on both net sales and EBITDA pre: −6% to −3%
In the second quarter of 2023, Merck leveraged its diversified portfolio with three business sectors to navigate a challenging market environment. While net sales of Life Science and Electronics declined in softer markets, Healthcare delivered organic sales growth of 11.9%.
Overall, Group net sales decreased by −4.8% to € 5,302 million compared to the same quarter of the previous year. The strong growth of the Healthcare business sector largely offset the decline in Life Science and Electronics, resulting in an organic development of Group sales of −1.1%. Despite the strong earnings growth of Healthcare, Group EBITDA pre declined by −12.8% (organically −7.0%) to € 1,553 million. This was caused primarily by decreased sales volumes and the proportionately lower share of higher-margin products. Negative foreign exchange effects put further pressure on both net sales and EBITDA pre.
Against this backdrop, Merck is updating its forecast for fiscal 2023. The company now expects an organic development of Group net sales of between −2% and +2% (previously +1% to +4%) along with an organic decline in EBITDA pre by −9% to −3% (previously: −5% to 0%). Excluding the Covid-19 business, Group sales are expected to grow organically by +1% to +5% (previously: +4% to +7%). Both net sales and EBITDA pre are likely to be impacted by negative foreign exchange effects of −6% to −3% (previously: −5% to −2%).
“For us, 2023 remains a transition year,” said Belén Garijo, Chair of the Executive Board and CEO of Merck. “In the second quarter, our Healthcare business once again proved to be a growth driver. We are building on the strengths of our diversified business model. We remain confident of our mid-term growth ambition and in delivering € 25 billion in sales by 2025.”
Headwinds from foreign exchange effects pick up in Q2 2023
Sales in the second quarter of 2023 decreased organically by −1.1%. Foreign exchange effects, especially from the U.S. dollar and the Chinese renminbi, had an adverse impact of −3.7% on sales. By contrast, in the first quarter of 2023, foreign exchange effects still contributed positively to sales growth by 0.8%.
EBITDA pre declined organically by −7.0% in the second quarter of 2023. The impact of foreign exchange on Group EBITDA pre was −5.7%. The EBITDA pre margin was 29.3%. Earnings per share pre were € 2.20.
Weaker market environment in Life Science and Electronics weighs on business performance in the first half of 2023
In the first half of 2023, Merck generated net sales of € 10,595 million, reflecting a decline of −1.6% (organic: −0.2%) compared to the same period of the previous year. While net sales of the Healthcare business sector grew organically by 8.8% in the first six months of 2023, Life Science (−4.2%) and Electronics (−6.7%) reported organic sales decreases. The main reasons were the significant decline in Covid-19-related demand and the weaker market environment in both Semiconductor Solutions and Display Solutions. Organically, Group EBITDA pre decreased by −4.5% to € 3,140 million in the first half of 2023. Earnings per share pre were € 4.57.
Life Science: Significant decrease in Covid-19-related demand drives organic decline in net sales and earnings
In the second quarter of 2023, the Life Science business sector reported net sales of € 2,354 million, a decrease of −11.1% compared with the same quarter of the previous year. Organically, sales declined by −8.7%. Foreign exchange effects had a negative impact of −2.4% on sales.
The Process Solutions and Life Science Services business units recorded organic sales declines of −11.8% and −30.5%, respectively. The main reasons were the significantly lower Covid-19-related demand and a considerable slow-down in the core business of Process Solutions due to destocking by key customers.
Organically, EBITDA pre of Life Science decreased by −26.1% to € 712 million. Lower sales volumes were a significant factor for this decline, as was the comparatively lower share of higher-margin products in sales, partly driven by lower Covid-19-related sales. Foreign exchange had a negative impact of −3.3% on earnings. The EBITDA pre margin of Life Science was 30.2%.
Healthcare: New products remain growth drivers, complemented by the positive development of the established product portfolio
In the second quarter of 2023, the Healthcare business sector increased net sales by 6.5% (organically: 11.9%) to € 2,049 million, amid a negative foreign exchange impact of −5.4%. The key growth drivers were the new launches, namely of the immuno-oncology drug Bavencio, which grew organically by 26.8%, as well as Mavenclad for the treatment of relapsing multiple sclerosis, which generated organic growth of 28.1%.
The established product portfolio also contributed positively to sales growth. Organically, net sales of the oncology drug Erbitux increased by 10.2% in the second quarter of 2023. The Fertility franchise generated organic sales growth of 24.7% compared with the same quarter of the previous year. Ongoing supply difficulties of a competitor had a favorable impact on net sales of fertility products from Merck. In addition, the market for fertility treatments in China continued its recovery after the Covid-19-related lockdowns ended.
In the second quarter of 2023, EBITDA pre of the Healthcare business sector amounted to € 704 million. Organic earnings growth of 30.4% was partly offset by negative foreign exchange effects of −13.9%. The EBITDA pre margin of Healthcare was 34.3%.
Electronics: Second quarter impacted by weaker market environment in Semiconductor Solutions and Display Solutions
The Electronics business sector recorded a −9.7% decline in net sales to € 899 million in the second quarter of 2023. Organically, sales decreased by −6.3% amid a foreign exchange effect of −3.8%.
The Semiconductor Solutions business unit reported an organic sales decline of −4.7%. The robust project business in Delivery Systems & Services (DS&S) largely offset the decline in Semiconductor Materials in what was, as expected, a weaker market. A recovery in the Semiconductor Materials business is delayed further. Market consensus now assumes a stabilization in the second half of the year at a continued low level. Continued weak pricing and the comparatively lower share of higher-margin products in liquid crystals were the main reasons for the organic sales decline of −10.9% in the Display Solutions business unit.
EBITDA pre of Electronics declined organically by −5.2% to € 262 million. Foreign exchange had a negative impact on EBITDA pre of −4.9%. The EBITDA pre margin was 29.1%.
Updated forecast for fiscal 2023
Merck is updating its forecast for fiscal 2023. The reasons for this are, in particular, the persistently high inventory levels of our Life Science customers, the further delayed recovery of the market for semiconductor materials, an increased cost level due to inflation and an even stronger negative foreign exchange impact. The company once again confirms its mid-term objective of delivering sales of € 25 billion by 2025. For fiscal 2023, the forecast for the Group is as follows:
Organic sales development: −2% to +2%, totaling € 20.5 billion to € 21.9 billion
Organic sales growth excluding Covid-19 business: +1% to +5%
Organic decline of EBITDA pre: −9% to −3%, totaling € 5.8 billion to € 6.4 billion
Negative foreign exchange effects on sales and EBITDA pre: −6% to −3%
EPS pre: € 8.25 to € 9.35, based on an underlying tax rate of 22 %.
