Leading position maintained Audited

Liquid Crystals | Total revenues

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. dollars 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 individual 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 differences in the structure of manufacturers: In Taiwan, suppliers mainly serve the electronics 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.