Merck 2010 Annual Report Download - page 106

We see opportunities from a strengthening growth trend, based on the product portfolio
focus on strategic brands. These brands are established in the premium price segment and are
growing above-average relative to the global OTC market. In addition to dynamically growing
markets in Latin America, our regional focus continues to be Europe. The Consumer Health
Care division faces risks from changing health care policy framework conditions, which can
negatively impact the business.
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Compared to 2010, CEFIC (European Chemical Industry Council) expects a relatively moderate
2.5% increase in European chemical output for 2011. This is due to the prevailing uncertainties
in the market regarding the development of the euro and U.S. monetary policy. The high demand
for chemicals, particularly from the Asian region, is pushing up the prices of basic chemicals,
which, according to CEFIC forecasts, will create a fear of destabilizing price peaks. In addition,
many governments will be forced to adopt cost-cutting measures and to reduce or eliminate
state spending in order to stimulate their economies.
The German Chemical Industry Association (VCI) forecasts that international production output
will grow by 2.5% in 2011, with sales rising 4% to EUR 177.4 billion. This forecast expects 2010
output and capital expenditure to be 0.6% and 4.6% higher, respectively, than the peak levels
of 2007, which was the best-performing year for the German chemical industry to date.
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With the acquisition of Millipore, we have created a successful business model for the life science
industry, in which we will occupy a strong market position in the future as well.
For the Merck Millipore division, which generated total revenues of EUR 1,613* million in 2010,
the Executive Board forecasts that total revenues will increase between 51% and 56% in 2011
and will increase again in 2012. Based on an operating result of EUR 48* million in 2010, this
is expected to rise significantly in 2011 and to increase further in 2012.
The significant changes in total revenues and the operating result are also due to the fact that
the newly acquired Millipore business was only consolidated for six months of 2010. Moreover,
it must be noted that the inventories from the acquisition were already recognized at fair value
and thus stepped up by EUR 86 million. This amount was fully expensed in cost of sales in
the second half of 2010, and had a one-time negative impact on gross margin. As a recurring
expense, the result includes the write-downs on intangible assets to their fair values resulting
from the acquisition of Millipore. Amortization is expected to amount to around EUR 200 million
for both 2011 and 2012. In addition, further integration costs are expected for 2011.
* Figure adjusted to reflect the new reporting structure
Merck Annual Report 2010 102