Merck 2014 Annual Report Download - page 87

82 GROUP MANAGEMENT REPORT → REPORT ON ECONOMIC POSITION → Review of forecast against actual business developments
REVIEW OF FORECAST AGAINST ACTUAL BUSINESS
DEVELOPMENTS
In the Annual Report for 2013, Merck KGaA, Darmstadt, Germany,
forecast slight organic sales growth for the Group in 2014, mainly
driven by the Life Science and Consumer Health divisions. For
EBITDA pre one-time items in 2014, a value at the 2013 level
was expected. This assumed that significantly reduced royalty and
license income, higher investments in research and development
activities in the Biosimilars business unit and expected negative
foreign exchange effects could be compensated for by the positive
effect resulting from the implemented efficiency measures. Busi-
ness free cash flow was forecast to decrease slightly owing to
further imminent investments in strategic growth projects.
In event of the successful acquisition and consolidation of AZ
Electronic Materials as of the second quarter of 2014, Merck
KGaA, Darmstadt, Germany, had forecast a moderate increase in
Group
sales and EBITDA pre one-time items as well as a slight
improvement in business free cash flow for 2014, compared with
2013.
Since the Group was able to successfully complete the acqui-
sition of AZ Electronic Materials and the first-time consolidation
of the business as of May 2, 2014, the forecast assuming the
acquisition of AZ Electronic Materials is used for the following
comparison.
Regarding the forecast of slight organic sales growth in the
Annual Report for 2013, the company showed moderate organic
sales growth of 4.0 % in 2014. This was mainly attributable to the
organic sales developments of the Biopharmaceuticals division
and Performance Materials, which exceeded expectations. The
Group’s organic sales growth was reduced by negative foreign
exchange effects amounting to – 1.8%. However, owing to the
appreciation of the U.S. dollar and important Asian currencies in
the fourth quarter, negative foreign exchange effects were not as
pronounced as expected. Due to the acquisition of AZ Electronic
Materials and the associated positive acquisition effect of 3.3 %,
the Group achieved overall sales growth of 5.5 % in the actual
course of business and thereby fulfilled its forecast of a moderate
increase in sales.
Thanks to stable sales of the drug Rebif® and organic growth
in all other key franchises, the Biopharmaceuticals division
achieved organic growth of 3.6 %. Assuming that sales of Rebif®
would decline, the division still expected stable organic sales
at the beginning of 2014. The Performance Materials division
achieved organic sales growth of 4.1 % due to slightly higher sales
than expected in the Liquid Crystals business unit, as well as the
good performance of the Advanced Technologies business unit.
Only slight organic growth had been forecast. As a result of
the positive acquisition effect arising from the acquisition of
AZ Electronic Materials, the Performance Materials division was
able to significantly increase sales overall as forecast. The
Consumer Health and the Life Science divisions achieved organic
sales growth of 5.4 % and 4.5 % respectively in accordance with
the corresponding forecasts.
As forecast, EBITDA pre one-time items of the Group, which
amounted to € 3,388 million in 2014, increased moderately in
comparison with 2013, particularly as a result of the acquisition
of AZ Electronic Materials. EBITDA pre one-time items of the
Biopharmaceuticals division declined slightly by – 1.3 % as ex-
pected. This was mainly attributable to lower royalty and license
income from Humira®, as well as the loss of royalty and license
income from Avonex® and Enbrel®. The Consumer Health division
did not achieve the forecast of a moderate increase in EBITDA pre
one-time items due to higher marketing and selling expenses,
showing a slight decline of 1.7 % to €169 million. In line with the
forecast, the Performance Materials division posted a significant
increase in EBITDA pre one-time items to €895 million, due to the
integration of the AZ Electronic Materials business. Likewise as
forecast, the Life Science division posted a slight increase in EBITDA
pre one-time items to €659 million thanks to moderate organic
sales growth. EBITDA pre one-time items of Corporate and Other
showed an improvement of 15.5 % to €– 166 million particularly
as a consequence of slightly higher gains from currency hedging,
thereby achieving a more positive result than expected.
Declining by – 12.0 % compared with 2013, the development of
the Group’s business free cash flow to €2,605 million fell short of
forecasts. As expected, the decrease at the Biopharmaceuticals
division was caused by the initiation of further investments in
growth projects, as well as lower EBITDA pre one-time items. In
the other divisions, the increase in inventories and trade accounts
receivable was primarily responsible for the deviation.