Merck KGaA

XETRA:MRK

Earnings Call Transcript 2023-Q2

[Sabia Schwarzer, executive]

Good morning, ladies and gentlemen, and welcome to our media call on the results of the second quarter of 2023. My name is Sabia Schwarzer, and I'm responsible for Communications at Merck. And with me here today is Belen Garijo, Chair of the Executive Board and CEO of Merck. And also for the first time with us today is our Merck CFO, Helene von Roeder. Both will take you through the main developments and our business performance in the second quarter. And after that, as usual, we will take your questions.

Please note, today's call will be held in English, and it will be recorded. And with that, I'll hand over to Belen.

[Belén Garijo López, executive]

Thank you, Sabia. Good morning, everyone. Good morning. I'm very pleased that you are joining today -- you are joining us today for our Q2 2023 call. And before we dive into our numbers, I would actually like to welcome our new CFO, Helene von Roeder, who is with us today. Together with our Executive Board, she will play a pivotal role in steering our company's growth trajectory and financial health. Helene, it's great to have you on board as the Merck CFO.

[Helene von Roeder, executive]

Thank you very much, and good morning from my side. I'm really looking forward to working and collaborating with you in the future. And -- well, let's hear from Belen now.

[Belén Garijo López, executive]

Ladies and gentlemen, first of all, let me start by stating that our second quarter has once again demonstrated the resilient nature of our multi-industry business model. Even when market challenges have increased since we reported Q1 for some of our business sectors, in particular, for Life Science and for the Semiconductor Materials market.

Today's numbers show that despite significant market headwinds, Merck is highly resilient as we continue to execute flawlessly on our growth strategies. Overall, the volatile macroeconomic environment continues to influence our business performance and our markets alike. The repercussions of the ongoing geopolitical tensions ripple across industries, disrupt supply chains, introduce trade barriers and bring uncertainty for future multilateral cooperation and globalization.

We also still face high level of inflation in many countries, as many of you know, higher interest rates, and all these macroeconomic elements will influence investment decisions and, most importantly, may continue to erode the consumer purchasing power. The current macroeconomic environment requires us to be extra disciplined in execution, keeping our teams, our workforce engaged and, most importantly, focused as we continuously adapt to those external pressures, which are here probably to stay for a while.

More than ever, our proximity to our customers and our ability to anticipate change, move quickly and with agility and capitalize on emerging trends will continue to be the key differentiating factor for competitiveness. I want to take this opportunity to recognize and thank our Merck teams for their continued dedication and their personal resilience to navigate through the storm.

So now let's jump right into our Q2 results, and I am on Slide #5 of the presentation. First of all, organically, our group revenues were down by 1% and EBITDA pre declined by 7%. The currency impact has now become a true headwind, contrary to last year. And this, paired with a minor portfolio effect, led to a decline of 5% on our reported sales to reach EUR 5.3 billion.

EBITDA pre came at EUR 1.55 billion, down organically by 7%, and this is mainly due to the market challenges affecting our Life Science sector, where organic EBITDA pre has been down by 26% in Q2 on lost volumes in Process Solutions, negative mix effects in the core business and also, of course, and importantly, due to lower COVID sales.

Healthcare has been the star of the quarter. Healthcare has been the best-performing sector, delivering 12% organic sales growth, which is driven by our launches of Mavenclad, Bavencio and our fertility franchise. Mavenclad is poised to reach blockbuster status in 2023.

Despite a continuing decline in the COVID-19 business, total Life Science sales were down 9% organically in Q2. This decline also had a negative effect on the EBITDA pre margin in Life Science and consequently influenced the group negatively.

In Electronics, Semiconductor Solutions decreased 5% organically, again, significantly outperforming the market -- the semiconductors market which, as expected, became more challenging in Q2.

While the business environment for Life Science and Electronics came under increasing pressure, Healthcare performed strongly and significantly offset the negative developments of Life Science and Electronics. So let's now have a look at our individual business sectors and, most importantly, the underlying factors that are behind these numbers.

Moving to Slide #6. As you can see, Healthcare contributed strongly to the organic sales development in Q2. And as I already mentioned, largely offset the declines in Life Science and Electronics. Our key growth engines in Q2 were our new product launches and the fertility franchise within Healthcare. In fact, Healthcare showed excellent organic growth of 12% in a continuously challenging operating environment. And this was mainly driven by almost 30% growth from recent launches with Bavencio up by 27% and Mavenclad up by 28% in second quarter. Our established portfolio also contributed with an organic sales performance of 8%.

When we look at the franchises, fertility was the highlight with an organic growth of almost 25%. Life Science was down by 4% in the core business in Q2, and this is related to a more pronounced destocking at customer level in Process Solutions. As expected, COVID sales continues to be dilutive to growth and were significantly down both year-on-year and sequentially. This, as already mentioned, resulted in sales decreasing 9% organically in Life Science in Q2.

Moving into Electronics. Our Semiconductor Materials business continued to significantly outperform a declining market. Paired with a significant decline in Display Solutions, though not as pronounced as in Q1, this led to an overall sales decline for Electronics of 6% organically in Q2.

With this, I would like to hand it over to Helene, who will give you a bit more details on the numbers.

[Helene von Roeder, executive]

Thank you very much, Belen. So let's dive right into the numbers with an overview of our key figures which you find on Slide 8. Overall, we continue to show resilience in an increasingly challenging business environment, supported clearly by our multi-industry setup.

Our net sales decreased by minus 4.8%, largely due to the significant decline in COVID-19-related sales for Life Science and a weaker market environment in Semiconductor Solutions as well as Display Solutions. As Belen already mentioned, strong growth of the Healthcare business sector largely offset the decline in Life Science and Electronics, resulting in an organic development of group sales of minus 1.1%.

Now in addition, we also faced currency-related headwinds, especially from the U.S. dollar as well as the Chinese renminbi, which adversely impacted our sales as well as our EBITDA pre in this second quarter. In nominal terms, EBITDA pre fell 12.8%, particularly due to decreased sales volumes and the proportionally lower share of higher margin products in Life Science and Electronics, which we would call the product mix. The resulting EBITDA pre margin came in at 29.3% in Q2, while earnings per share pre declined 16.7% to EUR 2.20.

Given the decline in our EBITDA pre, our operating cash flow declined by 27% to EUR 622 million. Our net debt increased more than 12% compared to year-end 2022 as a result of investments for future growth as well as naturally the annual dividend that is paid in Q2.

So with that, let's take a deeper look at the 3 business sectors, starting with Life Science, which you can find on Slide 9 (sic) [ Slide 11]. The business sector reported a net sales decline of minus 11.1% to EUR 2.35 billion. Now organically, sales declined by 8.7% with foreign exchange effects having an additional negative impact of minus 2.4%. This is mainly driven by a significantly lower COVID-19-related demand, which impacted actually all 3 of our business units.

So let's look at the business units individually. Process Solutions saw an organic sales decline of nearly 12%. Here, in addition to the decrease in pandemic-related sales, the business unit also saw a considerable slowdown in the core business due to destocking of key customers. Meanwhile, Life Science Services reported an organic sales decline of more than 30%, while our Science and Lab Solutions saw a slight organic sales decline of just 1%.

So looking at earnings. The decrease in marketing and selling expenses was largely driven by lower logistic costs in the second quarter while research and development costs in Q2 remained flat compared with the year earlier period. EBITDA pre saw an organic decline of minus 26.1% to EUR 712 million. The main reason were actually the lower sales volumes compared -- comparatively lower share of higher margin products and sales, partly due to lower COVID-19-related sales. Now additionally, currency had a negative impact of minus 3.3%. The resulting EBITDA pre margin was 30.2%.

So with that, let's move to our Healthcare sector, which you find on Slide 10 (sic) [ Slide 12 ]. Overall, the business sector grew by 6.5% to EUR 2.05 billion, organically 11.9%. However, with a negative currency impact of minus 5.4%. Our new Healthcare products, Bavencio and Mavenclad, were once again the key growth drivers here, complemented by the positive development of our established product portfolio.

If we look at the individual franchises, our oncology franchise delivered significant organic growth of 18% driven by strong sales of Bavencio across all regions, which grew 27% organically. This is further supported by our oncology drug, Erbitux, which delivered an organic sales growth of more than 10%, driven particularly by Asia Pacific as well as Latin America.

Our neurology and immunology franchise accelerated organic growth in Q2 to more than 12%, largely due to Mavenclad, which grew 28% in Q2. In addition, we saw a softer than expected decline in Rebif sales, which declined by minus 3%.

If you look at our established product portfolio, our fertility franchise generated double-digit organic sales growth, up nearly 25% compared with the same quarter last year. The ongoing supply bottlenecks faced by a competitor had a favorable impact on sales together with the continued recovery in China for fertility treatments.

And finally, our cardiovascular, metabolism and endocrinology franchise, CM&E, delivered roughly stable sales in the second quarter compared with the year earlier period. Sales of our diabetes medicine, Glucophage, declined sharply due to a difficult market situation in the Asia Pacific region, while the sales development of the beta blocker, Concor, and the thyroid medicine, Euthyrox, changed only slightly compared with the year earlier quarter.

Looking at the earnings side. Our marketing and sales expenses as well as research and development costs were roughly in line with the year earlier period. EBITDA pre of Healthcare increased to EUR 704 million. This is driven by the strong sales momentum, positive product mix and lower comps on gross profit, boosted by income from portfolio management. Organically, EBITDA pre grew more than 30%, partly offset by negative foreign exchange effect of nearly 14%. The EBITDA pre margin was 34.3%.

And now finally, Electronics, which we can see on Slide 11 (sic) [ Slide 13 ]. Here, we saw a net sales decline of minus 9.7% to EUR 899 million in the second quarter. Organically, sales decreased by minus 6.3% amid an FX impact of minus 3.8%.

The business sectors results were impacted by the weaker market environment in Semiconductor Solutions as well as Display Solutions. So if we look at individual business units, our Semiconductor Solutions business unit outperformed a declining market yet again. However, we reported an organic sales decline of minus 4.7% in a more difficult environment.

A robust project business in DS&S, which is delivery systems and services, largely compensated the decline in Semiconductor Materials in an expected weaker market. At the same time, a recovery in Semiconductor Materials business appears to be delayed even further. The market consensus now expects stabilization in the second half of the year at a persistently low level.

Our Display Solutions business unit saw an organic sales decline of nearly 11%. This is driven mainly by the continued weak pricing and the comparatively lower share of higher margin products in liquid crystals. And lastly, our Surface Solutions business unit saw a strong decline in sales due to weaker demand for industrial pigments and automotive coatings in the second quarter. This decline was partially offset by continued strong demand in Cosmetics, especially here in Europe.

On the earnings side, marketing and selling expenses decreased primarily due to lower logistics costs from the lower volumes as well as declining freight rates. Research and development costs were nearly stable year-on-year. All in all, EBITDA pre declined organically by minus 5.2% to EUR 262 million. Foreign exchange effects had a negative impact on EBITDA pre of minus 4.9%. The EBITDA pre margin was flat at 29.1%.

So with that, let's finally have a brief look at our balance sheet, which you find on Slide 12 (sic) [ Slide 14 ]. It is only slightly above the level as at the end of December 2022. The main driver behind this development was business growth. As you can see, total assets increased to EUR 48.8 billion. This is largely due to CapEx investment and an increase in inventories in Life Science as well as Electronics. We also saw a decrease in intangible assets, primarily due to FX as well as amortization. Other assets increased due to short-term investments. Cash and cash equivalents do decline accordingly.

On the liability side, our net equity increased slightly as well as our financial debt which increased over the past 6 months. Other liabilities were impacted by dividend payment in Q2, while the equity ratio actually improved slightly to 55%, thanks to our retained earnings.

And with that, over to Belen to share more on our full year outlook.

[Belén Garijo López, executive]

Thank you, Helene. In summary, a solid quarter, given the existing market pressures that both Helene and I have already alluded to. So in order to reflect the different developments in the business sectors, we are updating our 2023 guidance to now give a better perspective of the way we see the remaining of the year and to integrate some of these market dynamics that we have mentioned already.

In this context, we now expect net sales in a range EUR 20.5 billion to EUR 21.9 million, EBITDA pre in a range of EUR 5.8 billion to EUR 6.4 billion and EPS pre in a range of EUR 8.25 to EUR 9.35, thereby lowering the ranges provided with our Q1 results in May. But I would like you to note that the upper half of our guidance ranges still fall within our previous guidance ranges communicated in May.

And this is driven by 3 main factors: first, a weaker core business in the Process Solutions business unit due to inventory adjustment at major customers. Two, the further delayed recovery of the Semiconductor Materials market as the industry is now understanding, and this has been reflected in the different communications that we have seen recently from our customers, we are expecting a delayed recovery in the Semiconductor Materials market. And even a stronger impact of negative currency effects associated mostly for the full year to the U.S. dollar and the Chinese renminbi.

Therefore, we anticipate organic sales growth for the year to be between minus 2% and plus 2% with the midpoint implying a flat organic performance despite all the market pressures that we have seen increasing. We continue to expect to grow our net sales, excluding the COVID-19 business, organically between 1% and 5%. For EBITDA pre, we assume an organic decline of minus 9% to minus 3%. We are expecting negative currency impact of about minus 6% to minus 3% to weigh on both net sales and EBITDA pre.

These figures have the following implications for our business sectors. First, for Life science overall, we expect an organic sales development of minus -- between minus 8% and minus 2% and an organic EBITDA pre development between minus 21% to minus 12%, amid more pronounced destocking in Process Solutions.

For Healthcare, we are raising our guidance once again, as we did in Q2, now expecting organic sales growth of plus 6% to plus 9% and organic EBITDA pre growth now forecasted between plus 14% to plus 19%.

In Electronics, we have naturally become more cautious on both organic sales and EBITDA pre development in 2023, and now we expect sales to decrease organically between minus 6% to minus 1% versus last year and EBITDA pre to decline organically by minus -- between minus 18% to minus 10%. This mainly reflects a more pronounced and extended downturn in the Semiconductor Materials market with, I repeat, the industry forecasting delays in the timing of recovery and eventually moving the timing of recovery in 2024.

For the group as a whole, I'm pleased to say that our organic sales performance is basically flat in H1 despite the increasing challenges in Life Science and Electronics and despite the declining COVID business. Once again, clearly illustrating the strength of our multi-industry business model and our globally diversified footprint. While the current landscape may seen uncertain and volatile, we, at the Executive Board, are urging our teams to approach the challenges with confidence as this transition year paves the way for sustainable growth.

We are still on track to achieving our ambition of EUR 25 billion in sales by 2025, and I insist, on that journey, we characterize 2023 as a transition year for Merck, because we must not forget that ultimately, through science and technology, we continue to foster human progress. We continue to address major macro trends driving the world, also for the benefit of our partners, customers and patients.

And with this, I'm going to hand it back to Sabia to kick off our question-and-answer session. Thank you.

[Sabia Schwarzer, executive]

Thank you, Belen, and thank you, Helene. We're happy to answer any questions now. [Operator Instructions] The first question comes from [ Ludwig Berger ], Reuters.

We can't hear you, [ Ludwig ], not sure whether you can hear us. We will wait another second.

[Unknown Analyst]

Can you hear me?

[Sabia Schwarzer, executive]

Yes, now. Perfect. We could hear you for a second there, [ Ludwig ], now we can't. From our side, the mic is open. So click on the...

[Unknown Analyst]

Can you hear me now?

[Sabia Schwarzer, executive]

Yes. There you are. Perfect.

[Unknown Analyst]

I've got 2 questions. Firstly, on Life Science, please. Your customers among drugmakers and biotech firms. Maybe you can elaborate on what is behind this development there with clearly much reduced demand? Maybe you can elaborate a little on how this plays out between pharma majors and maybe smaller biotech firms and how that's differentiated? And then how, if any, the U.S. Inflation Reduction Act and the drug pricing regulation plays into this at all?

And secondly, the very different on China and Asia. You've spoken a lot about the situation in China and the growing geopolitical tensions. Is there anything happening in the non-China Asia region, maybe India, where you may be now -- be looking at other activities outside of China to offset this development, if that is a trend at all?

[Belén Garijo López, executive]

There's the 2 questions. So first of all, the U.S. IRA is influencing more of our pharma business than Life Science. So we still keep significant pricing power, mainly in relation to inflation, and we have been taking benefit of these conditions to offset part of our volume losses in Life Science.

So what is this destocking about? I mean I will try to make it brief because we have tonnes of details on the topic. During COVID, right? And in relation to the initial supply shortages that we have seen almost everywhere in many of the critical lines to support the COVID vaccine manufacturing, the customers -- basically, the customer order pattern was difficult to predict. So the customers order constantly to protect also their supply chains.

And after the COVID, sales started to -- volumes started to decline. Of course, the customers felt they need to adjust to normalize their inventory levels. And so it's a combination of normalizing their own inventory levels. And actually, the limited visibility that we may have, despite our proximity to the customers, is that much of the -- or some of the products that were initially ordered for COVID has been recycled to other -- to the manufacturing -- to the development and manufacturing of other biologics, depending on their own needs.

So we have seen a lot of that. As you know, because of our initial supply constraints, we have seen this effect of destocking only by mid Q1, and we were already expecting that this would be picking, meaning that we will see a higher effect in Q2. So this is happening mostly for major pharma accounts, right? And -- and we also see in some regions like China that our customers has been a slightly disadvantaged in COVID and , of course, they look for alternative sourcing whenever this has been necessary.

So we see this as a transitory effect. And once again, we are confident on the recovery once the destocking by our customers is completed, and they go back to their normal inventory levels. So that's for the first question.

On the China, Asia, India developments, let me first stress that we have been looking at alternative countries in terms of potential. And in terms of diversifying -- to continuously diversifying our supply chain. You know that diversification is definitely one of our strength, and we play in different geographies and in different industries and different channels, different segments. Aware of the current geopolitical challenges and mindful of the potential risk. We have been analyzing the way to mitigate those potential risks.

At this time, China remains a very important market for Merck. Our business is performing in China. We have challenges, and we have had challenges around COVID. And we continue to believe that in terms of market potential, China continues to be the next China, if I may define so.

Having said this, we -- for major capital investment, we always consider alternatives in Asia, Korea, Taiwan, in order to be able to serve our growth in Asia in the future, while potentially mitigating our risks.

[Sabia Schwarzer, executive]

[ Ludwig ], any other questions related to that? Otherwise, I would move on to the next question. The next question is from Monica Raymunt from Bloomberg.

[Unknown Analyst]

Great. I guess I just wanted to talk a bit about the topic of M&A, which we've spoken with Merck about before. It's been almost a year since we first heard you in October talk about how Merck has as much as EUR 20 billion of deal-making firepower and that you're also looking to do deals, both large and small. I'm wondering sort of if you could talk about the market for deals over the past year or so and if you see potential targets?

[Belén Garijo López, executive]

Thank you, Monica, for the question. Happy to give -- to share our approach to M&A. First of all, I want to emphasize that our organic outlook is solid. And as I mentioned, when we disclose the capacity that we have gained in relation to our good operational performance, we are not in a hurry. We are very well known for having done the right deals at the right time and at the right price, right?

So we are monitoring multiple targets. Life Science continues to be our top priority, both process solutions, Life Science Services and SLS, Science and Lab Solutions. We are very actively looking for gaining optionality in Healthcare. So in a form of pre and post [ spoke ] in licensing of potential assets that would increase our optionality, and of course, we believe we are very well positioned in semiconductor solutions that doesn't preclude that we are going to look at new technologies.

Given the macroeconomic situation and the way we have seen the multiples of different attractive assets to evolve, I still believe that it will take a little bit of time to find the way to deliver on right targets that will create value for the group -- right target, right price and, of course, as a result of this, the right timing. But I can tell you that we know the market really well. We have been scouting. We have a reasonable -- quite reasonable pipeline that we explore and follow on an ongoing basis. And I hope you all understand that rushing could actually prevent that we maximize the value creation for the longer term for the group.

[Sabia Schwarzer, executive]

Monica, any further questions in relation to that? If not, I would -- then our next question comes from [ Klaus Boone from Plateau ].

[Unknown Analyst]

I have 2. Number one is, if I look at your new targets for the group for this year, your sales target has been at midpoint, lowered by about 3% whereas the EBITDA pre has been lowered by more than 4%, 4.5%. What are you doing to -- a, is that a realistic perspective? I mean is it going to happen that EBITDA is going to fall more? And what are you going to do to preserve your margins there also over the long run?

And the second question deals with the Electronics segment, where you're saying you're outperforming the market. Could you please add a lean flash and some flavor to that? Let's say, where the market performed and how much outperformance you reached? And when do you see that trough in the second half?

[Belén Garijo López, executive]

So I will start by the second question. So usually, our market of preference for semiconductors is MSI. We look at the evolution of the so-called MSI, and this is the reference that we take to confirm our positions versus that market of reference. So that market, if I am not mistaken, is around minus 15%. And as you see, our performance is higher than this. Of course, within semiconductor solutions, we have materials, and we have DS&S. And as Helene mentioned before, our DS&S business is actually a very strong platform that is helping us to navigate the semiconductors market downturn. But this is the way we measure this.

I think that your first question is very relevant. What are we doing, right, to protect our margins? This is a top priority for us in this space in a transition year. And on top of having worked for the last 2 to 3 years in running our business more efficiently, we have seen mostly on some of the business units that the current inflationary environment is increasing the cost of the business and this can only be managed by containing costs, right?

And we are aiming to continue to be efficient in all our lines. And in particular for Life Science, after having grown the head count of the unit so significantly, thousand of people joined us to cover the COVID period, now we feel the need to modestly adjust our future resources and to match the demand. But make no mistake, because we believe strongly on the future of Life Science, we have to find a way to stay efficient without jeopardizing future growth.

So we will continue to invest on capacity expansions. As we have announced, we will continue to invest in Darmstadt. We will continue to invest in R&D, importantly. And we will focus on cost, which may be less relevant in order to protect and definitely mitigate the impact of the revenue shortfall.

Anything that you want to add, Helene?

[Helene von Roeder, executive]

No, I think, as Belen just highlighted, we will need to look at our costs and we will need to sort of like taper the business in line with future market expectations. Now let me be totally clear, we sit on a number of relevant megatrends. And hence, this is a very fine balance between driving the business for the future and protecting our margins as I'm sure you can relate to.

[Sabia Schwarzer, executive]

[ Klaus ], any follow-up to this? Otherwise, I would go to the next question. Go ahead, Klaus.

[Unknown Analyst]

Just a very brief one. Those cost reductions, would you care to put any number to that? Either euro or elsewhere wise?

[Belén Garijo López, executive]

We have been on a trajectory on -- as I mentioned already, I mean we are not starting now. I think we have been very, very good -- we have been really good and agile in anticipating the way the business will evolve, mainly COVID in Life Science. And we -- I think we have been spot on, on the way we forecasted this business and communicated to you. So we are not talking only about -- I mean as far as I can go is that it will be an overall approach to managing our cost that has been already initiated in past years in order to prepare for rainy days.

And now we will continue simply adjusting. In the short term, we will continue to adjust some of the P&L lines to the existing demand situation. But as Helene mentioned, I can only repeat that this is going to require a very fine balance so that we don't put ourselves in a situation that may prevent us to deal with the turnaround of our core business once the destocking comes to an end because we see this business as highly attractive and, once again, 2023 as a transition year.

[Sabia Schwarzer, executive]

So with that, I would go to the next question. The next question is from Theresa Rauffmann, Handelsblatt.

[Theresa Rauffmann, analyst]

No, I think I have my microphone on. Can you hear me now?

[Sabia Schwarzer, executive]

Yes, we can hear you.

[Belén Garijo López, executive]

We hear you very well.

[Theresa Rauffmann, analyst]

Great. Yes. I have 2 questions. One, concerning the cost reductions. You already announced that in Darmstadt, there are 200 jobs that will be cut. And maybe there are 550 more on the verge of being eliminated. I just wondered if there are any news with this jobs that have already been cut. What other measures are you taking? And in this context, you talked about your group structures to be reorganized with central functions such as HR or the legal team. What has happened there so far? And what are you going to do with these that you can tell us here?

[Belén Garijo López, executive]

Look, first of all, we have already discussed on your first question. The only thing that I can repeat is that we are heavily investing in Darmstadt. We are heavily investing in Darmstadt, in creating opportunities to support our capacity expansions. That is the example of Life Science with a new filtration site here. And we are also investing in R&D. We are investing in the translational science center in Healthcare, and we will do something very similar in Life Science. So we are investing in Darmstadt EUR 1.5 billion, as we have announced a few months ago, in order to be able to fuel the growth of our business. So that is the first comment.

Second comment. When we look at the head count evolution in Darmstadt, I should repeat exactly what I have said before. Our head count will develop in parallel to those investments that we are implementing in our main headquarter in Germany in Darmstadt. What has happened at the group functions so far, that we have used this opportunity to actually build our group functions, almost greenfield to address and to respond to a macro and micro environment, which is requiring different skills, new capabilities and -- et cetera, et cetera.

So the group functions is not only about cutting costs, is much more about gaining business proximity, aligning the group functions to the top priorities of the group and making sure that our global functions become enabling functions to our growth journey, the one we anticipate in the years to come.

I don't know if you want to be a bit more specific on cost, but I think...

[Helene von Roeder, executive]

No, I don't think that would make a lot of sense right now. I think just one more thought. I mean we obviously are on the verge of digitization and artificial intelligence. And hence, it is something, as Belen just mentioned, we all need to learn and understand better. And in my mind, this is actually like one of the biggest changes to how we work in the future, allowing us to become much more efficient.

And if I look at the finance organization, it will allow a finance organization not only to sort of assess the numbers from the past, but actually look at the current times and potentially then in a prediction way -- in a predictive way, now I've got the word, into the future.

[Belén Garijo López, executive]

You see -- I mean we see this within longer term on this topic. And I would only like to add in this context that Helene mentioned that each and every greenfield site that we are building in Darmstadt for sure and around the world will actually be automized, right, fully digitized and sustainable, right? So this is the way we are looking at this, and we aim to continue to raise on those topics that may help us mainly to automation and digitalization that may -- that will help us be more efficient in the way we manage our global functions, in particular. And not only that, other topics as well.

[Sabia Schwarzer, executive]

Theresa, any more follow-up question to that? Otherwise, I'll go to the next one.

[Theresa Rauffmann, analyst]

Yes. I have another question concerning another topic. It's about the Surface Solutions business. There are always some rumors that there had been bid, one from a Chinese company. I know you usually don't comment on this, but I just wondered if there is anything you can comment now on the Surface Solutions business?

[Belén Garijo López, executive]

You knew that we can't disclose at this time on the Surface Solutions business. That was a good try.

[Sabia Schwarzer, executive]

Is [ Patricia Weiss ] still there? She had raised her hand, not quite sure. Patricia, are you still on the line? Patricia from Reuters?

[Patricia Weiss, analyst]

It was also nice try about the Surface Solutions business. No further questions.

[Sabia Schwarzer, executive]

All right. Excellent. At the moment, we don't have any further questions in the pipeline. [Operator Instructions] [ Ludwig Berger ], Reuters, you had a follow-up question.

[Unknown Analyst]

Yes. Hope I'm doing better on the mute button this time. Can you hear me?

[Belén Garijo López, executive]

We hear you, yes.

[Unknown Analyst]

So I wanted to follow up on my first question actually, where I was asking about the -- indeed, the IRA initiative in the U.S., but specifically on the drug price regulation with the prospect of drug price cuts, discounts for best-selling drugs in the U.S. market. And I was wondering whether the drug -- looking at the Life Science division as a supplier to the drug industry, how do you see your customers reacting to that? Is that playing into the demand trends at all, if there are any? Are drugmakers hurrying projects rather or broadening projects? Or are they delaying them? And as has been hugely warned that this would stop in -- would slow down innovation. Are you seeing any specific effect on that from your point of view as a Life Science supplier?

[Belén Garijo López, executive]

Let me be direct, and then I will provide some context [ Ludwig ]. So far, we haven't seen an influence on the IRA into our Life Science business. We see our customers field in research and conducting clinical trials. I don't want to say business as usual because now it comes back. What we have seen a bit, but this is not -- we don't see this as a major threat to our life science potential in the midterm.

What we have seen is some major pharma companies announcing that, of course, if the intellectual property environment in the U.S. is negatively influence the development of small molecules, they may shift and focus more on biologics. I mean you know that our play is in biologics and novel modalities. Biologics and novel modalities are continued to be searched by both pharma industries and biotechs. And we don't anticipate at this time any major impact on our Life Science mid- and long-term perspectives or even feel the need to change our strategy since we are a big player in biologics in Life Science and novel modalities as well.

[Sabia Schwarzer, executive]

[ Ludwig ], any further comments, questions?

[Belén Garijo López, executive]

Of course, I mean we continue to be concerned with IRA and the potential influence on innovation, mainly studying our future pharma launches, right, and making sure that we fully understand what could be the potential implications of IRA in our future launches.

[Sabia Schwarzer, executive]

Thank you very much. We don't have any further questions in the line, which means we can conclude our call very punctually. Thank you so much for joining us.

And just a few reminders, the next date for our financial communications are our Capital Markets Day on October 19, and the Q3 results on November 9. In the meantime, have a great summer and see you next time. Goodbye.

[Belén Garijo López, executive]

Thank you all. Have a great summer. Bye-bye.