Merck 2014 Annual Report Download - page 133

128 GROUP MANAGEMENT REPORT → Report on Risks and Opportunities
Opportunities due to an expanding local presence in
high-growth markets
In the coming years, Merck KGaA, Darmstadt, Germany, still an-
ticipates above-average growth for all its business sectors in the
markets of Latin America, the Middle East and Africa as well as
Asia. In order to further enable this growth, the Group has moved
forward with several investment projects, such as the construction
of new production facilities for liquid crystals and the establish-
ment of a new pharma production site in China. Moreover, the
company is strengthening its activities in Africa through strategic
investments as well as geographic expansion in selected regions.
The greater local presence and customer proximity could lend the
company a key competitive edge and, in the medium to long term,
offer the opportunity for significant additional growth in sales
and
EBITDA pre one-time items.
FINANCIAL RISKS AND OPPORTUNITIES
As a corporate group that operates internationally and due to its
presence in the capital market, the company is exposed to various
financial risks and opportunities. Above all, these are liquidity and
counterparty risks, financial market risks and opportunities, risks
of fluctuations in the market values of operational tangible and
intangible assets, as well as risks and opportunities from pension
obligations.
Risk and opportunity management in relation to the use
of financial instruments
In the area of financial risks and opportunities, the Group uses an
active management strategy to reduce the effects of fluctuations
in exchange and interest rates. The management of financial risks
and opportunities by using derivatives in particular is regulated by
extensive guidelines. There is a ban on speculation and derivative
transactions entered into are subject to ongoing risk management
procedures. Trading, settlement and control functions are strictly
separated.
Liquidity risks
In order to ensure its continued existence, a company must be able
to fulfill its commitments from operating and financial activities
at all times. Merck KGaA, Darmstadt, Germany, therefore has a
central Group-wide liquidity management process to reduce poten-
tial liquidity risks. Furthermore, the company has a multi-currency
revolving credit facility of €2 billion with a term of five years and
an extension option of one year that, above and beyond the
Group’s positive operating cash flow, ensures continuing solvency
if any liquidity bottlenecks occur. As our loan agreements do not
contain any financial covenants, these agreed lines of credit can
be accessed even if the company’s credit rating should deteriorate.
Additionally, the Group has a commercial paper program with a
maximum volume of €2 billion as well as a debt issuance pro-
gram that forms the contractual basis for the issue of bonds with
a nominal volume of up to €15 billion.
A purchase price of US$ 17 billion is payable for the planned
acquisition of Sigma-Aldrich. This is covered by cash on hand as
well as further syndicated credit lines with a bank consortium and
currency hedging. Some of the credit lines are being successively
replaced by the issuance of bonds.
Overall, the liquidity risk is rated as unlikely.