Q3 2012 Earnings Call Transcript

Transcript Call Date 11/15/2012

Operator: Ladies and gentlemen, welcome to Merck's Conference Call presenting the Third Quarter 2012 Earnings. As a reminder all participants will be in a listen-only mode. After the presentation there will be an opportunity to ask questions.

May I now hand you over to Joshua Young who will lead you through this conference. Please go ahead, sir.

Joshua Young - Head, IR: Thank you and welcome to Merck's third quarter 2012 earnings presentation and conference call. My name is Joshua Young, Head of Investor Relations for Merck and joining me on today's call are Karl-Ludwig Kley, Chairman of the Executive Board and Matthias Zachert, Chief Financial Officer of Merck.

I would like to begin by stating that we will be referencing a slide presentation as part of our prepared remarks today. These slides could be downloaded from our Investor Relations website. In addition to the slides, you can also download our quarterly financial reports and our Q3 financial statements in excel.

I'd also like to remind you that we will be making forward-looking statements during today's presentation. Please review our disclaimer about the risks and uncertainties of such statements on Slide 2. In particular, these statements reflect current business conditions as of today, November 15, 2012.

Now, I'd like to turn the call over to Karl.

Karl-Ludwig Kley - Chairman of the Executive Board: Good afternoon everybody. I would like to begin my presentation on Slide number 4, solid underlying performance. I'll start with summarizing the key messages for Q3. First, we showed a strong financial performance. And second, the transformation of the Company continues at full speed.

Let me begin with the financial performance. In Q3, sales grew to 11.8% to EUR2.7 billion and this performance reflected a continuation of the solid business trends that we have seen throughout 2012. Primary growth drivers were Merck Serono and Performance Materials boosting our organic sales growth to 5.9%. This is actually the highest level of organic growth we have posted this year.

Reported sales include a 5.7% benefit from foreign exchanges. Another highlight of the quarter is the fact that Emerging Markets have surpassed Europe, it's our largest region. Finally we are making good progress with our efficiency initiatives. We have completed negotiations in over 50% of our targeted countries. In many of those countries we have already started implementation of the plans which is reflected in both lower costs and lower headcount in Q3.

From a profitability perspective, EBITDA pre-one-time items grew 15.6% to EUR754 million. It's a margin of 27.7%, considerably ahead of last year. Our profitability improved constantly over the last few quarters. This is a reflection of our top line performance, savings from the efficiency program and better resource allocation.

Combined with actions to improve the efficiency of working capital we could also have structural strong cash flow and that must reduce our net debt to EUR2.1 billion which was more than EUR800 million lower compared to the end of June this year.

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