Merck 2014 Annual Report Download - page 59

54 GROUP MANAGEMENT REPORT → FUNDAMENTAL INFORMATION ABOUT THE GROUP → Objectives and strategies of the Group
Performance Materials business sector
Performance Materials
The demand for high-tech products in general and for innovative
display solutions in particular has seen high global growth in
recent years. This trend is not expected to weaken in the coming
years. Instead, the Group assumes that increasing demand for
these types of consumer goods will come from a growing middle
class in emerging markets. Therefore Performance Materials will
defend its position as the market and technology leader for liquid
crystals and further expand it as far as possible.
Since the typical life cycle of LC mixtures is less than three
years, innovation will remain the key success factor. The liquid
crystals pipeline of Performance Materials is well-stocked with
new technologies such as self-aligned vertical alignment (SA-VA),
advanced fringe field switching (FFS), as well as projects with
applications beyond displays.
The Group’s OLED business, which is part of the Advanced
Technologies business unit, posted strong, above-average growth
in 2014. Performance Materials wants to further position itself in
the OLED market and play a leading role in this market segment
in the medium to long term. Lower production costs for OLED
displays are a precondition for this. External partnerships will also
be used in the future to ensure the required exchange of tech-
nology and expertise.
The acquisition of AZ Electronic Materials has sustainably
strengthened the portfolio and the market position of Performance
Materials. All integration measures were successfully implemented
in 2014, adding a further premium business to the existing profit-
able businesses. AZ is a manufacturer of ultrapure, innovative
specialty chemicals and materials for use in integrated circuits
(semiconductors) and equipment, in flat-panel displays, and for
photolithographic printing. Both Performance Materials and AZ
have very similar and attractive business models based on inno-
vation, customer proximity, high market share and profitability in
the growth areas of displays, semiconductors, organic electronics,
and lighting.
Within its Pigments & Functional Materials business unit, the
company continues to focus on high-quality brands that add value
for customers as well as on market segments with growth poten-
tial. These include effect pigments, e.g. for automotive coatings,
and functional materials, e.g. for laser marking.
STRATEGIC FINANCIAL
AND DIVIDEND POLICY
For reasons of sustainability, Merck KGaA, Darmstadt, Germany,
generally follows a conservative financial policy. Apart from a
solid balance sheet with transparent and healthy structures, this
policy is reflected by the selection of financing sources, liquidity
management, key financial indicators, the dividend policy, and
risk management. The company generates high business free cash
flow and its return on capital employed has been sustainably
maintained at a high level.
In the context of the ongoing Group-wide efficiency program,
in the past years cash was reserved with high priority to fund
restructuring measures across all divisions and regions. In 2014,
liquid funds were then used in particular for the acquisition of AZ
Electronic Materials (Performance Materials).
One-time expenses in connection with restructuring measures
as well as costs related to the integration of acquired businesses
have also been assumed for 2015. With the planned acquisition of
Sigma-Aldrich (Life Science) in 2015 – subject to the successful
closing of the transaction – liquid funds would likewise again be
used for inorganic growth. Accordingly, in the coming years, the
repayment of the financial liabilities taken up in connection with
this acquisition would be at the fore, along with the associated
on going interest payments. In this case, initial one-time expenses
for the integration could already be incurred then. However,
smaller, so-called bolt-on acquisitions are still not ruled out. In
addition, the company will also invest in organic growth initia-
tives as part of its “Fit for 2018” transformation and growth pro-
gram.
The Group is pursuing a sustainable dividend policy. Provided
that the economic environment develops in a stable manner, the
current dividend represents the minimum level for future dividend
proposals. The dividend policy follows the business development
and earnings increase of the coming years. However, dividend
growth could deviate, e.g. within the scope of restructuring or in
the event of significant global economic developments. The com-
pany also aims for a target corridor of 20 – 25 % of EPS pre one-
time items.