Merck KGaA Looks Ahead to the Future

Merck KGaA, Darmstadt, Germany, held its 23rd Annual General Meeting recently. The company’s 350th anniversary was one of the overriding themes. Stefan Oschmann, CEO and chairman of the Executive Board, reported to approximately 1,300 shareholders of Merck KGaA, Darmstadt, Germany, on business developments and strategic moves in 2017 and presented an outlook for the current year.
 
“2017 was a good year for our company. In a challenging market environment, we met all the financial targets that we had set for ourselves. Our ability to do so despite increasing competition in the Liquid Crystals business and the strength of the euro against the US dollar is thanks to the curiosity, energy and engagement of our nearly 53,000 employees,” said Oschmann.
 
As already reported, in 2017 Merck KGaA, Darmstadt, Germany, generated sales of €15.3 billion, which corresponds to an increase of 2.0% over the previous year. The strong organic performance of the Healthcare and Life Science business sectors was responsible for this. EBITDA pre, the company’s most important earnings figure, declined by -1.7% to €4.4 billion. Net income rose in 2017 by nearly 60% to a record level of €2.6 billion. By the end of 2017, Merck KGaA, Darmstadt, Germany, had lowered its net financial debt from the Sigma-Aldrich acquisition by nearly 12% to €10.1 billion.
 
For the Healthcare business sector, 2017 was a year of key strategic moves. On April 19, 2018, Merck KGaA signed an agreement to divest Consumer Health to Procter & Gamble (P&G) for around €3.4 billion in cash. The transaction, which is expected to close by the end of the fourth quarter of 2018, is subject to regulatory approvals and satisfaction of certain other customary closing conditions.
 
The Life Science business sector, which offers products and solutions for laboratories, as well as for biotech and pharmaceutical companies, again generated very solid growth in 2017. This was driven by all business units, especially however by the business with products for large- and small-molecule drug manufacture. A highlight for Life Science in 2017 was the opening of the new Life Science Center in Burlington, MA (USA). This enables Merck KGaA, Darmstadt, Germany, to further strengthen its presence in the Greater Boston area, the main biotech hub.
 
In 2017, the Performance Materials business sector, which offers specialty chemicals and high-tech materials, was again the Group’s most profitable business. Nevertheless, Performance Materials faced growing competition in the Liquid Crystals business, particularly in China. By contrast, the other business units of this business sector showed better performance and, in some cases, generated strong organic growth, for instance the semiconductor materials business.
 
In November, Merck KGaA opened a production facility for liquid crystal window modules in Veldhoven, the Netherlands. With an investment of around €15 million, Merck KGaA continues to build on its expertise as the market and technology leader in liquid crystals for displays by moving into other applications beyond televisions, laptops, smartphones, and tablet PCs.
 
On Sept. 1, a personnel change took place on the Executive Board when Kai Beckmann assumed the leadership of the Performance Materials business sector. To strengthen its focus in 2018 even more strongly on the needs of customers and markets, Merck KGaA announced in December 2017 that it will combine the expertise of its Performance Materials business sector in three newly created business units aligned with target markets: Display Solutions, Semiconductor Solutions, and Surface Solutions.
 
With a view to 2018, the Oschmann warned about the risks posed by Brexit and the reinvigoration of protectionism. In 2018, Merck KGaA expects moderate organic growth of Group sales in comparison with 2017.
 
Oschmann also gave shareholders his view of the period beyond 2018: “For us, 2018 is a demanding year,” Oschmann noted. “We are investing in our future. These efforts will pay off. As of 2019, we should then generate increases again in all key figures: sales, EBITDA pre and EBITDA pre margin. Because then we expect significant earnings from our new medicines. Our aim is for Life Science to continue to grow faster than the market. All this should more than compensate for the trough that we expect in Performance Materials in 2019.”