(New: CFO's statements from quarterly conference, share price updated, analyst, more background)

DARMSTADT (dpa-AFX) - The decline in Corona sales and continued weakness in liquid crystal sales hurt Merck at the start of the year. The Darmstadt, Germany-based DAX-listed company was only able to moderately increase sales on its own, following strong growth during the pandemic. "2023 will be a transition year for us," company CEO Belen Garijo said, according to Thursday's statement. She still has her sights firmly set on the targeted 25 billion euros in sales in 2025. In the meantime, however, the outlook for Merck in the semiconductor market has darkened unexpectedly. Management now rules out a stable result for the current year.

On the stock market, the news was received positively after an initial slide in early trading. Merck shares were the top performer on the Dax with a recent gain of just over 2.6 percent. The share price loss for the year to date was thus reduced to around eight and a half percent. According to a stock trader, the annual targets missed the average expectations of analysts. However, the first quarter was above the target ranges. Jefferies analyst Peter Welford also said the company's operating profit to start the year was above market expectations.

In the first quarter, Merck's organic sales - i.e. excluding acquisitions and exchange rate effects - rose moderately to around 5.3 billion euros. In nominal terms, the increase was just under two percent. Earnings before interest, taxes, depreciation and amortization (adjusted Ebitda), adjusted for special items, decreased by just under three percent year-on-year to around 1.59 billion euros. After tax, profit fell by almost ten percent to 800 million euros.

During the pandemic, Merck's laboratory business had long benefited from strong demand from vaccine manufacturers and researchers. However, as the virus subsided, Corona sales there have recently fallen significantly. The group has also long been struggling with competition from Asia in the liquid crystals business, for example for TV and smartphone screens. In addition, higher costs in the wake of inflation are putting pressure on the company.

Management had therefore already issued a cautious initial forecast in the spring. In the meantime, however, it has become apparent that the weakness in the semiconductor market will be more pronounced than initially assumed, according to the Darmstadt-based company. Exchange rate effects are also likely to have a greater impact than expected.

Sales in the current year are therefore expected to be between 21.2 and 22.7 billion euros - compared with 22.2 billion euros in the previous year. However, adjusted operating profit is expected to fall 6.1 to 6.7 billion euros compared with 6.8 billion from 2022. In the worst case, this would be an organic decline of five percent.

Management expects the semiconductor market, which the pharmaceutical and specialty chemicals group entered in 2019 with the acquisition of U.S.-based Versum, to recover in the second half of the year. However, it said this would be "later and from a lower base than originally assumed." Any weakness beyond that was not factored into the annual targets, admitted chief financial officer Marcus Kuhnert, who is stepping down from the post shortly.

The weak semiconductor market and the continuing slump in the liquid crystals business caused a slump in earnings in Merck's electronics division at the start of the year, after the company had recently been earning well here. Major semiconductor customers had put project lines on hold, Kuhnert said.

In the laboratory division, Merck was able to compensate for the lack of Corona sales by continuing to grow its core business, primarily with products and services for scientific research. However, the division's earnings were only a razor-thin increase over the previous year. During the pandemic, the laboratory business had still regularly been the main growth and profit driver. For this year, management expects pandemic-related sales of 250 million euros, compared with 800 million euros in Corona sales a year ago.

At the start of the year, Merck's more recent bestsellers from the Pharmaceuticals division were the main contributors to business growth, primarily the cancer drug Bavencio and Mavenclad for the treatment of relapsing forms of multiple sclerosis. Sales of the division grew by a good six percent, while adjusted operating profit rose by more than eleven percent.

Meanwhile, CFO Kuhnert reaffirmed Merck's ambition to grow also through acquisitions. The Darmstadt-based company continues to prefer smaller and medium-sized complementary acquisitions, but does not rule out a larger takeover some four years after the multi-billion Versum deal.

In China, the manufacturer is concerned about increasing tensions with the United States. Merck is closely monitoring the situation and looking for solutions to make its business less risky and its supply chains more robust, the CFO explained. Imports from other countries, above all the U.S., could therefore be limited. In the pharmaceuticals business, for example, the Group already produces directly on site for China. The importance of the large Chinese market has steadily increased for Merck; the Group generated more than three billion euros in sales there last year. There will probably be no cutbacks for the time being: oWe are determined to continue investing in Chinao, Kuhnert said.

Merck recently announced Kuhnert's departure as Chief Financial Officer at the end of June. After nine years in office, he felt it was time for him to take on new challenges, the manager now explained his motives. He will be succeeded at Merck on July 1 by Helene von Roeder, who comes from the real estate group Vonovia. The former chief financial officer of Germany's largest residential landlord is already being considered as a candidate to succeed Merck executive Belen Garijo, who has been in office since May 2021./tav/stw/stk