Merck is the world’s leading manufacturer of liquid crystals for liquid crystal displays. Display Search, a market research firm for the display sector, forecasts that the size of liquid crystal displays continues to increase by 7% in 2013 and 8% in 2014. The main growth will be driven by an increase in average TV display size and the tablet computer market.
One major market of our effect pigments business within the Performance Materials division is automotive coatings. The German automobile industry association VDA (Verband der Automobilindustrie) expects the world market for automobiles to grow by 3% to 70 million units in 2013. Growth is expected in the United States and China. For the United States, the VDA expects a 5% increase, while China is seen to increase demand by 6% On the other hand, the automotive marked in western Europe and Japan are predicted to decline by 3% each.
After a very strong 2012 in the Performance Materials division, we expect a slight organic sales decline in 2013. For 2014 we expect a moderate organic increase again.
In 2013, EBITDA pre will still remain high, but at best is expected to be slightly below the very strong level of 2012. Due to the more volatile nature of the business, it is difficult to provide guidance on the longer term momentum. Should we be able to launch new technologies in the following years, the division strives to develop EBITDA pre accordingly. Should this not materialize, 2014 might not reach a higher EBITDA pre level compared to 2013 and our mid-term guidance remains unchanged.
The division assumes that the Liquid Crystals business unit will maintain its market leadership position in LC mixtures in the coming years, but might face increasing competitive pressure compared to the extraordinary position it held in 2012.
Price pressure on LC mixtures is however expected to continue, driven by competition. Further growth should come from new LC mixtures for innovative LCD technologies, but we assume no major new technologies to be introduced in either 2013 or 2014. To maintain our leadership in innovative LC technologies, R&D activities will continue at a high level. This also applies to promising future businesses with reactive mesogens, OLEDs and LED materials, which will account for an above-average share of the growth achieved by the Performance Materials division. We are prepared for the dynamic growth of the Chinese display market and have invested locally to participate in it.
In addition, the Performance Materials division expects that the Pigments & Cosmetics business unit will grow only slightly, but will be able to increase its profitability due to the continued focus on cost management.
Free cash flow in 2013 and 2014 will remain at the elevated levels of the previous years. This will be ensured by carefully managing capital spending and working capital.
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