"We again achieved everything we aimed for in the second quarter. That applies to both the Sigma-Aldrich integration and the development of new medicines," said Stefan Oschmann, CEO and chairman of the Executive Board. "Strong demand for our products and dynamic market developments gave our Healthcare and Life Science businesses additional tailwinds. Since particularly in Healthcare our performance in the second quarter was so good, we have decided to lift our forecast for the full year."
Net sales of Merck KGaA rose in the second quarter of 2016 by 18.2% to €3.8 billion (Q2 2015: €3.2 billion). Organic sales growth, which was driven by Life Science and Healthcare, amounted to 5.1%. Acquisition-related sales growth of 19.2% reflects the Sigma-Aldrich transaction, which closed in November 2015. This was amid negative exchange rate effects of -6.1%, which were mainly due to Latin American currencies.
In the second quarter, Merck KGaA, Darmstadt, Germany, grew organically in all reporting regions. As a result of the Sigma-Aldrich acquisition, North America's share of Group sales increased significantly to 26% (Q2 2015: 20%). Europe and Asia-Pacific, which each accounted for a 31% share of Group sales, were the largest reporting regions.
EBITDA pre exceptionals, the key earnings indicator of the Group, climbed by 28.8% to €1,158 million (Q2 2015: € 899 million) due to the good operating performance of Healthcare and Life Science as well as the Sigma-Aldrich acquisition. The EBITDA margin pre exceptionals rose to 30.4% (Q2 2015: 27.9%). Despite higher exceptionals in the course of the Sigma-Aldrich acquisition, Group EBIT grew by 9.8% to €550 million (Q2 2015: €501 million).
In the second quarter, the Group's net income of €312 million was -9.1% lower than in the year-earlier period (Q2 2015: €343 million). This reflected a sharp increase in the negative financial result stemming mainly from the long-term share-based variable compensation program, whose value increased due to the favorable development of the company’s share price in the second quarter of 2016. Earnings per share pre exceptionals rose in the second quarter of 2016 by 19.2% to €1.55 (Q2 2015: €1.30).
Net financial debt, which had increased sharply owing to the Sigma-Aldrich acquisition, decreased slightly to €12.5 billion as of June 30, 2016 (December 31, 2015: €12.7 billion) despite dividend payments. Merck KGaA, Darmstadt, Germany, had 50,456 employees worldwide on June 30, 2016.
In the first half of 2016, net sales of the Group increased by 19.3% to €7.5 billion (January-June 2015: €6.3 billion). This was due to both acquisition effects (+19.5%) and organic sales increases (+4.9%). Exchange rate movements lowered sales by -5.1% in the first half and were primarily attributable to Latin American currencies.
EBITDA pre exceptionals of the Group amounted to €2.2 billion in the first half of 2016 (January-June 2015: €1.8 billion). This represented an increase of 27.9% over the first half of 2015. Earnings per share pre exceptionals climbed by 27.2% to €3.09 in the first half of 2016 (January-June 2015: €2.43).
In the second quarter, net sales of the Performance Materials business sector declined organically by -4.7%, mainly owing to destocking by display industry customers. In addition, negative exchange rate effects of -2.0% were incurred. The SAFC Hitech business of Sigma-Aldrich, which has been integrated into the Performance Materials business sector, made a positive impact with a 3.1% contribution to sales. Sales by Performance Materials thus declined by -3.5% to €621 million (Q2 2015: € 643 million).
The Display Materials business unit saw an organic decrease in sales owing to the continued volume declines of mature liquid crystal technologies as well as destocking by customers, a development that will extend into the second half of the year. By contrast, the innovative liquid crystal technology UB-FFS grew further. The Integrated Circuit Materials business unit, which includes the business with materials used to manufacture integrated circuits and the SAFC Hitech business of Sigma-Aldrich, generated solid organic sales growth.
The Pigments & Functional Materials business unit delivered very strong organic growth in comparison with a weak year-earlier quarter. Within the Performance Materials business sector, the highest growth rates were achieved by the Advanced Technologies business unit. This was primarily due to the expanding business with OLED materials. A new OLED materials production unit in Darmstadt involving an investment of around €30 million is to be commissioned in September 2016 to manufacture materials for ultra-modern displays and lighting.
Moreover, Merck KGaA, Darmstadt, Germany, is planning to construct a new production facility for liquid crystal window modules for around €15 million; manufacturing is scheduled to begin in 2017. Merck KGaA's objective is to expand its market and technology leadership in liquid crystals beyond applications in displays.
In the second quarter, EBITDA pre exceptionals of Performance Materials amounted to €273 million (Q2 2015: €295 million). With an EBITDA margin pre exceptionals of 44.1%, the profitability of Performance Materials was the highest among all the business sectors.
Owing to the good business performance in the second quarter, Merck KGaA is lifting its forecast and now expects Group net sales to increase to between €14.9 billion and €15.1 billion in 2016 (previous forecast: €14.8 billion to €15.0 billion).
Owing to the good business performance, especially in the Healthcare business sector, Merck KGaA is also raising its forecast for EBITDA pre exceptionals, which is now expected to range between €4,250 million and €4,400 million for 2016 (previous forecast: €4,100 million to €4,300 million). Business free cash flow of the Group is expected to be between €3,140 million and €3,250 million in 2016.