Merck 2008 Annual Report Download - page 58

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MANAGEMENT REPORT OF THE MERCK GROUP 53
24 Responsibility
26 Merck shares
30 Pharmaceuticals business sector
50 Chemicals business sector
12 Overall economic situation
14 Economic development
of Merck
15 Financial position and results
of operations
60 Corporate and Other
61 Risk report
64 Report on expected developments
64 Subsequent events
Leading position maintained
Total revenues of the Liquid Crystals division decreased by 4.2% to € 877 million
in 2008. Apart from market correction due to overcapacities, the economic downturn
and negative currency effects played a major role. Sales are generated in U.S. dol-
lars or in local currency such as the Japanese yen. As most manufacturing costs are
booked in euros but sales are booked in currencies that are presently weak, there is
no natural currency hedge for the division’s business. On a currency-adjusted basis,
growth was 5.6%.
At € 541 million, the division’s gross margin fell 12% compared with the previous
year. The operating result decreased by 20% to € 391 million as currency effects directly
impacted the division’s profit. At 44.6%, return on sales was below the previous year’s
level. Free cash flow declined by only 5.3% to € 402 million.
Markets affected to varying degrees
Merck continues to do most of its business with major display manufacturers in Asia.
Merck’s customers – like other consumer goods manufacturers – are affected by the
global economic crisis as well as market overcapacities. However, the impact in the indi-
vidual regions varies: The first signs of declining demand became noticeable in October,
mainly with manufacturers in Taiwan. We saw a more positive picture in Japan and
South Korea: Despite the crisis, which was also distinctly felt in these countries during
the fourth quarter, full-year sales increased slightly. The reason for this are the differ-
ences in the structure of manufacturers: In Taiwan, suppliers mainly serve the electron-
ics industry (original equipment manufacturers), which in turn cover the increased
demand of the major electronics companies at peak times. By contrast, in Japan and
South Korea the major brand manufacturers predominate. They also produce their own
displays and mainly cover the higher-value price segment.
Medium-size screens dominate the market
Televisions and notebooks continue to be the most important growth drivers of the LCD
industry. After the trend of the past years toward ever-larger format screens, growth of
this segment is slowing and the market is increasingly settling in the medium-price
segment with screen diagonals of 32 to 40 inches. For 2009, the market research firm
DisplaySearch assumes an increase in total display surface area produced globally.
Liquid Crystals | Key figures
€ million 2008 2007 ∆ in %
Total revenues 877 916 –4.2
Gross margin 541 611 –12
R&D 85 79 8
Operating result 391 487 –20
Exceptional items – – –
Free cash flow (FCF) 402 425 –5.3
FCF before acquisi-
tions and disposals 407 425 –4.3
ROS in % 44.6 53.1 –
Liquid Crystals | Total revenues
€ million
2004 2005 2006 2007 2008
1,000
750
500
250
www.merck-chemicals.com/
lcd-emerging-technologies