Merck KGaA Reports a Solid Start to 2018

Merck KGaA, Darmstadt, Germany, reported a decline in sales in the first quarter of 2018 despite organic growth. This was due to negative foreign exchange effects. EBITDA pre-declined after having benefited from favorable one-time effects in the previous year. Merck KGaA confirmed its full-year forecast with respect to organic business performance. However, the company expects slightly higher negative foreign exchange effects.
 
“When we presented our financial results for 2017, we indicated that 2018 would be a transition year for our company. The figures for the first quarter confirm this,” said Stefan Oschmann, chairman of the Executive Board and CEO of Merck KGaA, Darmstadt, Germany. “The organic sales growth that we achieved in all regions was more than offset by negative exchange rate effects. For Performance Materials, the market environment in the Liquid Crystals business continues to be difficult. Our focus on moving ahead in all three of our business sectors through innovation remains unchanged.”
 
Net sales of Merck KGaA decreased in the first quarter of 2018 by -4.4% to €3.7 billion (Q1 2017: €3.9 billion). Organically, Group sales increased by 3.5%, driven by the Healthcare and Life Science business sectors. The Group generated organic growth in all reporting regions. In particular, the US dollar, which was considerably weaker in comparison with the year-earlier period, led to negative exchange rate effects of -7.9%.
 
EBITDA pre, the company’s most important earnings indicator, declined by -18.2% to €1.0 billion in the first quarter (Q1 2017: €1.2 billion). Group EBIT fell by -31.4% to €518 million (Q1 2017: €755 million).
 
In the first quarter, Merck KGaA, Darmstadt, Germany, lowered its net financial debt by €170 million compared with Dec. 31, 2017. Consequently, for the first time since the Sigma-Aldrich acquisition, the figure was just under the €10 billion mark (December 31, 2017: €10.1 billion).
 
In the first quarter, net sales of the Performance Materials business sector declined by -12.5% to €564 million (Q1 2017: €645 million). This resulted mainly from negative foreign exchange effects of -8.5%. This decrease was amplified by the -4.0% organic decline in sales.
 
Since April 1, 2018, Performance Materials has been organized into the three business units Display Solutions, Semiconductor Solutions and Surface Solutions. The integrated innovation unit Early Research & Business Development is supporting the business units to identify projects with growth potential and to capture new markets.
 
The Display Solutions business unit saw an organic decrease in sales in the first quarter but continued to defend its market leadership position despite stronger competition. The sales decline in Display Solutions stemmed from the decrease in the unusually high market shares in recent years of established liquid crystal technologies. An exception here were OLED materials as well as the energy-saving UB-FFS technology, which each recorded double-digit organic growth.
 
The Semiconductor Solutions business unit, which comprises the business with materials used in integrated circuit production, for instance in the microchip industry, delivered very strong organic growth. The Surface Solutions business unit, which combines the businesses with pigments and functional fillers as well as optoelectronic materials, recorded a slight decline in net sales in the first quarter, which was mainly due to the exceptionally strong year-earlier quarter.
 
EBITDA pre of Performance Materials fell in the first quarter by -25.7% to €196 million (Q1 2017: €263 million). This was due not only to the organic decrease, but also to considerably negative foreign exchange effects.
 
Following the first quarter, Merck KGaA continues to expect for the full year 2018 a moderate organic net sales increase of between 3% and 5% over the previous year. Overall, Merck KGaA, Darmstadt, Germany, forecasts 2018 Group net sales of €15.0 billion to €15.5 billion based on an unchanged portfolio.
 
The planned divestment of the Consumer Health business, which Merck KGaA announced on April 19, 2018 and would like to complete in the fourth quarter, is likely to reduce full-year net sales of the Group by between €0.9 billion and €1.0 billion. Taking into account the planned Consumer Health divestment, Merck KGaA, Darmstadt, Germany, forecasts 2018 Group net sales of €14.0 billion to €14.5 billion from continuing operations.
 
The company expects that Group EBITDA pre will be in a corridor between €3.95 billion and €4.15 billion in 2018. In the company’s estimation, the divestment of the Consumer Health business will lower EBITDA pre of the Group by between €170 million and €200 million, leading to EBITDA pre from continuing operations in a range of between €3.75 billion and €4.0 billion.