The new Performance Materials division comprises Merck’s materials businesses and activities, i.e. Liquid Crystals, Pigments plus Advanced Technologies such as materials for OLEDs (organic light-emitting diodes), LEDs (light-emitting diodes), photovoltaics and other innovative technologies.
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Performance Materials | Key figures |
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EUR million |
3rd quarter |
3rd quarter |
Jan.–Sep. |
Jan.–Sep. |
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Total revenues |
345.7 |
281.8 |
1,062.3 |
735.8 |
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Gross margin |
236.4 |
138.1 |
713.4 |
338.7 |
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Research and development |
–32.5 |
–27.2 |
–92.1 |
–82.1 |
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Operating result |
151.9 |
72.6 |
449.4 |
125.0 |
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Exceptional items |
– |
– |
– |
1.2 |
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Free cash flow |
158.9 |
97.9 |
418.5 |
165.4 |
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Underlying free cash flow |
165.4 |
116.8 |
425.0 |
184.2 |
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ROS in % |
43.9 |
25.8 |
42.3 |
17.0 |
Total revenues of the division rose 23% in the third quarter to EUR 346 million from EUR 282 million in the year-ago quarter. Positive currency effects accounted for 12% of the revenue increase with 11% stemming from organic growth.
Merck’s Liquid Crystals business accounts for 74% of the division’s revenues. Revenues from Liquid Crystals rose 21% to EUR 255 million. This represented organic growth of 8.3% and positive currency effects of 13% as much of the sales are generated in U.S. dollars or Asian currencies. In the third-quarter, liquid crystal revenues were lower than the EUR 284 million recorded in the second quarter. This is due to the recent onset of an inventory correction in the LCD market with panel makers reducing their production, as well as slightly less favorable currency exchange rates.
Performance Materials | Sales by region – Q3
The increase in revenues was again driven by high demand for liquid crystals based on Merck’s patented Polymer Stabilized Vertical Alignment (PS-VA) technology, which offers better moving-picture quality, faster switching times, higher contrast and brightness, and lower power consumption – qualities desired by manufacturers of the latest generation of LCD televisions.
Merck’s Liquid Crystals business also supplies LC materials for 3D televisions and tablet touch screens, among other applications.
Sales by the Pigments business were especially high during the third quarter compared to last year as demand in the automotive industry returned to, or even exceeded, levels prior to last year’s economic crisis. This business also experienced a favorable currency tailwind.
The division’s production costs decreased substantially, leading to a gross margin of EUR 236 million in the third quarter compared to EUR 138 million in the year-ago quarter. Production utilization was at a high level for both liquid crystals and pigments as the businesses have recovered from the slowdown in 2009.
Research and development costs rose by 20% to EUR 33 million, or 9.4% of total revenues, in the third quarter. This comparatively high R&D spending rate for a chemicals business is justified by high-margin technological advances. On September 23, the Chancellor of the Federal Republic of Germany Dr. Angela Merkel visited Merck’s headquarters in Darmstadt for the inauguration of the new EUR 50 million Material Research Center, where these technological advances are being developed.
With a gross margin that increased faster than expenses, the operating result of the Performance Materials division more than doubled to EUR 152 million in the third quarter compared to EUR 73 million in the year-ago quarter. The division’s ROS was 43.9% compared to 25.8% the third quarter of 2009.
The operating result for Liquid Crystals in the third quarter increased by 90% to EUR 137 million, leading to an ROS of 53.6% compared to 34.1% in the year-ago quarter.
The free cash flow for the Performance Materials division rose to EUR 159 million in the third quarter from EUR 98 million in the year-ago quarter. The third-quarter underlying free cash flow was EUR 165 million in 2010 and EUR 117 million in 2009.
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