Restrained growth
Despite declining demand from customer segments of the Pigments business, as well as the partially stagnating LC display market, total revenues of the division rose in 2011 by 1% to € 1,467 million, from € 1,452 million in 2010. While the division reported an underlying core operating result of € 525 million, the divestment of the Crop BioScience business in February hindered stronger growth of total revenues. Exceptional items amounted to € 157 million from the divestment of the Crop BioScience business to Novozymes A/S in Denmark.
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Performance Materials | Key figures |
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€ million |
2011 |
2010 |
Δ in % |
|
Total revenues |
1,467 |
1,452 |
1.0 |
|
Gross margin |
874 |
951 |
–8.1 |
|
R&D |
134 |
131 |
2.9 |
|
Operating result |
525 |
576 |
–8.9 |
|
Exceptional items |
157 |
–1 |
– |
|
Free cash flow |
693 |
542 |
28 |
|
Underlying free cash flow |
492 |
549 |
–10 |
|
ROS in % |
35.8 |
39.7 |
|
The Performance Materials division generated more than 70% of its total revenues with liquid crystals. The 8.0% increase in total revenues of the LC business was offset by a decline in the Pigments & Cosmetics business unit, where total revenues were 5.4% lower than in 2010. The division’s gross margin decreased by 8.1% to € 874 million from € 951 million in 2010. Consequently, the operating result fell by 8.9% to € 525 million from € 576 million in 2010. This decline was mainly attributable to decreased production capacity utilization at times, increased raw materials costs, as well as additional expenses for new product launches. However, the division’s profitability was lower than in 2010; return on sales (ROS) amounted to 35.8% in 2011, compared to 39.7% in 2010. In order to defend and expand our leadership position, we invested steadily in research and development. R&D spending rose to € 134 million in 2011 from € 131 million in 2010.
The earthquake and tsunami that struck Japan in March 2011 and paralyzed the infrastructure in the north-eastern part of the country hardly impacted the division’s liquid crystals business. We took advantage of having multiple LC production sites in Asia, using all three to supply our customers in this emergency situation. While the natural disaster did cause damage to the pigments production plant in Onahama, this only slightly impacted the pigments business in the first half of 2011. Production at this site resumed in May after an interruption of only four weeks. Merck will additionally begin producing Xirallic® pigments, which are in high demand for automotive coatings, at its German site in Gernsheim in 2012.
Performance Materials | Sales by region
