Merck prepares for a drop in profits

The Darmstadt-based pharmaceutical and technology group Merck is preparing for tougher times after a profit increase in 2022.

Merck prepares for a drop in profits

The Darmstadt-based pharmaceutical and technology group Merck is preparing for tougher times after a profit increase in 2022. While the Dax company benefited from immense demand from vaccine manufacturers worldwide during the pandemic, this special boom will continue to subside this year, as Merck announced on Thursday.

In addition, the semiconductor market, in which the group recently earned well, is weakening. In addition, there are negative exchange rate effects and cost pressure due to inflation, for example in energy, raw materials and logistics. CEO Belén Garijo spoke of a challenging year when presenting the balance sheet in Darmstadt.

The adjusted operating profit (Ebitda) will decrease moderately in the worst case and at most be stable, the group with more than 64,000 employees predicted. Organic sales should increase slightly to solidly. However, Garijo was confident of reaching the sales target of 25 billion euros by 2025. There is also the possibility of accelerating growth with acquisitions and the licensing of drugs from other companies. Garijo had recently estimated the capacities for this at 15 billion to 20 billion euros and was open to larger deals.

charged with inflation

Merck also felt the effects of inflation last year, but was able to pass on costs. Sales grew by almost 13 percent to 22.2 billion euros, 6.4 percent of which was organic. Currency effects from the dollar and the yuan helped Merck. The USA and China are important markets for the group, which had a positive effect on the conversion into euros. Adjusted Ebitda increased by 12.2 percent to 6.85 billion euros. At the same time, Merck's profitability fell somewhat. The bottom line was a profit of 3.34 billion euros after a good 3 billion in the previous year.

The laboratory division once again boosted growth with products for pharmaceutical research and drug production. This more than offset the waning tailwind from the pandemic. In recent years, Merck has benefited from huge demand from vaccine researchers and manufacturers worldwide and also supplied the Mainz-based manufacturer Biontech. The pandemic-related special sales in 2022 were 800 million euros. This year it should be 250 million, said Garijo.

Meanwhile, the pharmaceutical division benefited from sharply rising sales of the cancer therapy Bavencio and the multiple sclerosis drug Mavenclad. The electronics division was once again driven by a booming semiconductor materials business, which Merck entered in 2019 with the billion-dollar takeover of the US group Versum. Since then, the Darmstadt-based company has benefited from the high global demand for chips in the course of digitization.

On the other hand, sales in the business with display solutions for televisions and smartphones, for example, collapsed by around 20 percent on their own. Here, the group has been struggling with tough competition from Asia for liquid crystals for screens for a long time. If there was great demand for entertainment devices during the pandemic, this special boom is also ebbing away. "Inflation is eating into consumers' budgets more and more," said Chief Financial Officer Marcus Kuhnert.

The shareholders should also benefit from the increase in profits in the past year. Merck plans a dividend of EUR 2.20 per share, almost a fifth more than in 2021.