The Performance Materials division comprises Merck’s materials businesses and activities, i.e. Liquid Crystals, Pigments & Cosmetics, as well as Advanced Technologies, which offers innovative materials for lighting, photovoltaics, energy-storage solutions and other high-tech applications.
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Performance Materials | Key figures |
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€ million |
Q2 – 2011 |
Change |
Jan.–June |
Change |
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Total revenues |
373.5 |
–6.5 |
782.2 |
3.7 |
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Gross margin |
198.7 |
–25.3 |
462.9 |
–5.9 |
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Research and development |
–30.1 |
0.4 |
–66.5 |
8.6 |
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Operating result |
104.3 |
–37.7 |
273.1 |
–8.6 |
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Exceptional items |
0.4 |
– |
157.4 |
– |
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Free cash flow |
153.9 |
0.7 |
452.5 |
74.3 |
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Underlying free cash flow |
154.0 |
0.7 |
251.6 |
–3.1 |
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ROS in % |
27.9 |
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34.9 |
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On an organic basis, second-quarter total revenues of the division rose 1.4% year-over-year. However, total revenues declined nominally by 6.5% to € 373 million due to negative currency effects of 4.9% stemming from the Taiwan dollar and the U.S. dollar and a negative 3.0% impact due to the absence of sales from the Crop BioScience business that was divested in the first quarter of 2011. For the first half of 2011, total revenues rose 3.7% to € 782 million from € 754 million in the year-ago period.
Performance Materials | Sales by region – Q2
The Liquid Crystals business unit, which accounts for the largest share of the division’s revenues, delivered a solid performance with organic growth of 1.8% during the second quarter of 2011 in comparison to a very strong year-ago quarter. A moderately softer pricing environment, negative effects from changes in foreign exchange rates and a negative product mix was more than offset by strong volumes. This is due to the continued high demand for Merck’s broad range of innovative liquid crystal materials, which are used in flat panel displays for televisions and computer monitors as well as touch screens for the very popular smart phones and electronic tablets. Merck expanded its overall market share in liquid crystals during the first six months of 2011.
While the March 11 earthquake in Japan disrupted power supplies and damaged roads and other infrastructure in the northeastern part of the country, it did not affect the division’s production site for liquid crystals at Atsugi. However, Merck’s pigments production plant at Onahama was damaged and negatively affected production of the popular Xirallic® pigments for automotive coatings for most of April. The resulting volume loss was somewhat offset by reducing existing inventories of Xirallic® and increasing prices for pigments in the second quarter. Besides Japan, Merck produces effect pigments in Germany, China and the United States.
The Advanced Technologies unit is beginning to make an increasing contribution to the division’s revenue stream thanks to reactive mesogens and other optic materials. Reactive mesogens are liquid crystalline materials that can either be coated onto flexible plastic foils to form compensation films or be used inside a display to form in-cell optical elements. Their main application at this time is in 3D displays, such as in flat-panel televisions.
Inventory adjustments amounting to € 39 million substantially burdened the Performance Materials division’s cost of sales in the second quarter. As a result, cost of sales increased 31% to € 175 million from € 133 million in the year-ago quarter. If adjusted for these items, the underlying profitability of the division was comparable to the previous year.
Research and development costs were unchanged at € 30 million, or 8.1% of total revenues.
With headwinds from currency effects, the absence of profits from the divested Crop BioScience business, adverse changes in product mix as well as one-off charges for inventory adjustments and an impairment loss for various patents, the operating result of the Performance Materials division declined by 38% to € 104 million in the second quarter. This resulted in an ROS for the division of 27.9% in the second quarter of 2011 compared to 41.9% in the year-ago quarter. For the first half of 2011, the operating result was down 8.6% to € 273 million, resulting in a half-year ROS of 34.9% in 2011 compared to 39.6% in 2010.
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