Merck presented its financial results for 2023 in line with its forecasts published last August, demonstrating the solidity of its business model despite the complex market environment. The strong development of the area of Healthcare Logistics partially offset sales and profit declines related to the Life Science and Electronics business. The company expects to gradually return to organic growth over the course of fiscal 2024.
Fiscal 2023 was characterized by complex market conditions: the significant decline in demand related to Covid-19, as expected, persistent inventory reduction by key Merck customers in Process Solutions and the cyclical slowdown of the demand for semiconductor materials.
As a whole, the Group's net sales decreased by 5,6% (organically: -1,6%), to 20.993 million euros. EBITDA decreased by 14,2% (organically: -9,0%) to €5.879 million.
“We have achieved solid results in a transition year such as 2023, despite complex market conditions, which demonstrates, once again, the strength of our businesses. “Our diversification will continue to benefit from attractive market growth opportunities also in the medium term,” he stated. Belén Garijo, president of the Executive Committee and CEO of Merck. “We are now fully focused on gradually returning to growth during fiscal 2024, while defining our strategic roadmap to ensure long-term profitable and sustainable growth for Merck.”
Negative exchange rate effects weigh on sales and profits
In fiscal 2023, the Group's net sales decreased organically by 1,6% compared to the previous year. Currency exchange effects, primarily due to the evolution of the US dollar and the Chinese renminbi, had a 4,1% adverse impact on sales. EBITDA decreased organically by 9,0%. Currency exchange had a further negative impact on earnings of 4,9%. The EBITDA margin was 28,0%.
The previous earnings per share were 8,49 euros. On this basis, the Executive Committee and the Supervisory Board will propose to the Annual General Meeting on April 26, 2024 a dividend of 2,20 euros per share, which corresponds to the dividend of the previous year.
Life Science
In fiscal 2023, the evolution of sales and profits in the Life Science sector was mainly affected by two market factors. As expected, Covid-19-related sales decreased significantly, going from around €800 million in 2022 to around €250 million during 2023. Additionally, Process Solutions' core business slowed down considerably due to the reduction in inventory by key customers who therefore placed fewer new orders. This resulted in an overall organic sales decline in the core business (excluding Covid-19 related sales) of Life Science of around 2%.
As a whole, sales in the sector decreased by 10,6%, to 9.281 million euros. From an organic point of view, the decrease was 7,9%. Currency exchange had a 2,7% negative impact on sales. As a consequence of this market context, the Process Solutions and Life Science Services business units recorded organic sales declines: -14,4% and -14,6% respectively.
Science & Lab Solutions, which provides products and services to support research, diagnostics and testing activities and generated around half of Life Science's net sales in fiscal 2023, reported an organic sales decline of 0,6. XNUMX%.
In fiscal 2023, Life Science's EBITDA decreased organically by 21,4%, to €2.820 billion. Currency exchange had a negative impact of 3,3% on profits. The EBITDA margin was 30,4%.
Healthcare Logistics
Healthcare net sales increased organically by 8,5% in fiscal year 2023. Despite the negative effects suffered by the exchange rate of 5,8%, sales overall increased by 2,7%, to 8.053 million of euros.
The main drivers of growth were, once again, the launches of the so-called “first wave”. The immuno-oncology drug Bavencio® (avelumab) grew organically by 23,4%. Mavenclad sales® (cladribine tablets) for the treatment of relapsing multiple sclerosis increased organically by 15,9%. The latter surpassed the equivalent of $1.000 billion in annual sales for the first time since its market launch. The same thing happened for the second year with the oncology drug Erbitux®, with sales of 1.025 million euros. The Fertility (organically: +14,9%) and Cardiovascular, Endocrinology and Clinical Medicine (organically: +4,0%) franchises also generated organic sales increases. In Fertility, this evolution was favored by stockouts of competing products.
Healthcare EBITDA increased organically by 17,1%, to €2.543 million. The exchange rate had a negative impact of 14,4% on profits. The EBITDA margin was 31,6%.
Electronics
In the Electronics sector, fiscal 2023 was mainly characterized by the current cyclical slowdown in the semiconductor industry. Overall, sales decreased by 8,8%, to 3.659 million euros. In addition to the organic decrease of 5,1%, the exchange rate had an adverse impact of 4,1% on the evolution of sales.
In the Semiconductor Solutions business unit, sales decreased organically by 3,9%, outperforming the market. This decline was primarily due to lower demand for semiconductor materials, which was partially offset by the projects and equipment business within Delivery Systems & Services, which benefited from continued investments by key customers in the expansion of long-term capacity.
Persistent price pressure and declining customer usage in the field of liquid crystals, especially in the first half of 2023, were the main reasons for the organic sales decline of 9,2% in the first half of XNUMX. Display Solutions business.
Electronics' EBITDA amounted to 913 million euros. Apart from the organic decline of 17,1%, currency exchange also had an adverse impact of 5,6% on the earnings development. The EBITDA margin was 25%.
Outlook for fiscal year 2024: return to growth
Merck expects a gradual return to organic growth during 2024, a year that is expected to be characterized by the following developments:
- in the industry Life Science, a gradual improvement in order intake is expected at Process Solutions, with an inflection point during the first half of 2024. Sales are subsequently expected to recover in the second part of 2024. During this year, Merck expects the rest of the sales related to Covid-19 will gradually reduce.
- sector sales are expected to Healthcare Logistics grow in line with medium-term expectations, as the effects of competitors' stockouts fade.
- It is expected that the semiconductor materials market in the Electronics gradually recover in 2024 compared to 2023, with the turning point occurring early in the second half of the year.
As in previous years, Merck will announce a quantitative forecast with the release of first quarter financial results on May 15, 2024.
- Merck expects light to moderate organic sales growth in fiscal 2024, with Healthcare as the main driver and the exchange rate is expected to affect sales developments between -3% and 0%.
- For EBITDA, Merck also forecasts slight to moderate organic growth. Profit growth will be mainly driven by the Healthcare sector in fiscal 2024. The exchange rate will likely have an impact of -4% to -1% on profit development.
