Our forecasts for Merck take into account the company’s weighing up of risks and opportunities in accordance with our operational plans and medium-term assumptions. However, possible acquisitions, divestments and exceptional items are not included. The forecasts assume a moderate development of energy and raw material prices, as well as increasing personnel costs. Since we produce specialty chemicals, we are largely independent of oil price developments. Overall, we expect our businesses to see stable prices or market-oriented price increases. We only see ourselves exposed to significant price pressure in the Performance Materials division. We also see continued price pressure in the pharmaceutical sector, especially due to structural problems of health care systems.
The forecast development for total revenues of the entire Merck Group is presented in the following table:
|
Overall overview 2010 – 2011 |
||||
|
|
|
| ||
|
|
Total revenues | |||
| ||||
|
EUR million |
adjusted actual values 2010* |
Forecast 2011 | ||
|
Merck Serono |
5,754 |
5% – 10% | ||
|
Consumer Health Care |
472 |
7% – 12% | ||
|
Merck Millipore* |
1,613 |
51% – 56% | ||
|
Performance Materials* |
1,452 |
2% – 7% | ||
|
Merck Group |
9,291 |
13% – 18% | ||
As of 2011, the Cosmetics Actives business became part of the Performance Materials division. By contrast, in 2010 this was still part of the Merck Millipore division. The growth rates forecasted for these divisions in this report are therefore based on adjusted actual figures for 2010.
Against the background of expected overall economic development and based on total revenues of EUR 9,291 million in 2010, the Executive Board assumes an increase in total revenues between 13% and 18% in 2011, and further growth for 2012. Furthermore, the Executive Board expects the Group operating result of EUR 1,113 million in 2010 to increase between 35% and 45% in 2011 and to increase as well in 2012. Profit after tax, irrespective of potential exceptional items, will likewise improve during this period.
Our debt has increased as a result of the Millipore acquisition. Merck had an equity ratio of 46.3% and net debt of EUR 4,484 million in 2010, and we expect the equity ratio to increase slightly at a high level. In the next few years, we plan to reduce debt by around EUR 2 billion. Based on the very high underlying free cash flow of EUR 1,670 million in 2010, we expect underlying free cash flow to remain at a high level in 2011 and 2012. Should payments for litigation be necessary, this would have a negative impact on underlying free cash flow. In the coming years, capital spending on property, plant and equipment will be lower than in 2010. Based on research and development spending of EUR 1,397 million in 2010, Merck will reach the 2010 research spending ratio of around 14% to 15% in 2011 and 2012.
Merck has an extensive risk and opportunity management system, which is described in the Risk Report. Relative to the forecast period of two years published in the Report on Expected Developments, we mainly see business-related opportunities and risks. Owing to Merck’s diversification and broad product portfolio, a very different spectrum of important opportunities and risks results for each individual division. The relevant explanations are given for the respective divisions.
Forecast for the Corporate and Other segment
Corporate and Other comprises the costs for the Merck Group functions. This includes the costs of Corporate Auditing, of the Legal and Tax departments, of the Annual General Meeting, etc. Taxes for the Merck Group are also disclosed here as well as the financial result. Based on a figure of EUR –90 million for 2010, the operating result will remain unchanged in 2011. We forecast a further rise in costs for 2012.
Dividend development
For 2010, we are proposing to the Annual General Meeting the payment of a dividend of EUR 1.25 per share. Based on our earnings expectations, the family of owners and Merck shareholders can continue to expect to receive an earnings-oriented dividend.
Summary
For both 2011 and 2012, the Executive Board expects growth in both the total revenues and operating result of the Merck Group. The higher financial liabilities of the Merck Group, which resulted from the Millipore acquisition, will steadily decrease over the next several years, also as a result of our high free cash flow. This will continue to lead to solid balance sheet ratios.
The actual results of the Merck Group and its divisions may deviate substantially from the expectations of predicted developments. This would be the case if one or other of the uncertainties mentioned were to occur, or if the planning assumptions were to prove inaccurate.
back
