In 2013 we again delivered what we promised. We further developed our businesses with innovative and highly specialized products and services. We expanded our presence in global growth markets. And through numerous development partnerships, we honed our ability to meet the needs and wishes of patients and our customers.
Karl-Ludwig Kley
Chairman of the Executive Board
The numbers reflect this development. Merck is in a strong financial position, despite a consistently challenging market environment. Thanks to solid organic growth of 4.2%, which nearly offset negative exchange rate effects in full, we maintained our sales at € 10.7 billion. EBITDA pre one-time items, our most important earnings figure, increased by 9.7% to a record level of € 3.3 billion. At € 1.2 billion, profit after tax more than doubled.
As in 2012, our organic growth was particularly fueled by the dynamic business performance in the growth markets of Asia and Latin America. In the Emerging Markets region, sales increased organically by 9.3%. Accordingly, the share of Group sales generated by the Emerging Markets region rose to 36%.
We also continued to reduce our debt in 2013, lowering net financial debt by 84.1% to € 306.6 million. At the same time, business free cash flow was € 3.0 billion, reaching the high level of 2012. We thus have a solid financial foundation for the coming years and enough room to grow, also through bigger acquisitions.
We will propose to the Annual General Meeting to increase the dividend by € 0.20 to € 1.90 per share. This is in keeping with our aim to continually raise the dividend in line with increases in net income. However, in our deliberations on the dividend proposal, we also took into account that we are in a period of transformation.
In 2013, we made good progress with our transformation and growth program known as “Fit for 2018”. We even reached some of our objectives faster than planned, for instance those aimed at lowering costs. Yet “Fit for 2018” extends well beyond efficiency improvements. The program also encompasses the strategic expansion of our product portfolio and the establishment of more productive structures and processes within the company. Our goal is clear: We want to achieve profitable growth with innovative products and strict customer focus.
“Fit for 2018” also applies to our divisional strategies:
- In the Merck Serono division, we are working to improve our pipeline and to fully exploit the potential of the existing portfolio. Our regional focus will be on the United States and on growth markets in Asia and Latin America. The aim is to establish Merck Serono globally as a preferred biopharmaceutical partner that offers innovative specialty medicines, leading brands and high-value solutions.
- We have successfully raised the profitability of Consumer Health and generated new growth by focusing on key brands and markets, bringing costs under control and recruiting new employees. The aim now is to ensure sustainable growth through innovations and convincing marketing of our strategic brands in rapidly growing markets.
- In Performance Materials, we intend to defend our position as the market and technology leader in liquid crystals. Through the steady development of our products and our strong positioning in OLED technology, we want to continue setting innovation standards for display technologies. In the Pigments business, we are focusing on strengthening and expanding our leading market positions for high-quality effect pigments.
To strengthen our materials business, we want to acquire AZ Electronic Materials, a leading premium supplier of high-tech materials for the electronics industry. The acquisition would enable Merck to access additional growth areas in the electronics industry, allowing us to benefit even more from the increasing demand for electronic devices beyond displays, such as smartphones and tablet PCs. The successful completion of the transaction is, however, conditional upon antitrust clearance, among other things. - In the Merck Millipore division, our efforts will concentrate on expanding and strategically aligning the portfolio in order to meet customer needs even better. The key focus regions are North America, Asia and Latin America. We are resolutely pursuing the goal of bringing further innovative products to market.
Above and beyond the divisional strategies, we have defined four capability initiatives. They address fundamental topics that are of utmost importance to the performance of the entire company:
- We want to strengthen the Merck brand in order to further increase our global visibility as an innovative company and as “Merck – the original”.
- To raise our appeal as an employer, we want to better foster talent and performance. We are aiming to further develop the capabilities of our employees and increase workforce diversity.
- We want to further harmonize and streamline processes in order to make Merck faster, more flexible and more powerful.
- In order to be open and accessible to customers, business associates and the community, and to add more room for creativity, we are revamping our global headquarters in Darmstadt. An Innovation Center will be at the heart of this development, serving as a hub to advance cutting-edge projects at Merck.
Customers and patients are at the center of all our efforts. After all, meeting their wishes and needs with the best products and highest quality standards is essential in order for us to achieve our own objectives. True to our mission statement: “Our aspiration is to make great things happen. With our research-driven specialty businesses, we help patients, customers, partners and our communities around the world to live a better life. We deliver entrepreneurial success through innovation.”
For this we need the right team – and we have it. Our workforce of around 38,000 men and women in 66 countries is focused each and every day on finding innovative solutions for customers, patients and partners. They clearly show that at Merck, we are living innovation. I owe all Merck employees a debt of gratitude for their commitment and expertise.
We have set ambitious goals that we at Merck want to achieve by our 350th anniversary in 2018. These goals have been condensed into nine aspirations. We want to be globally known for innovation, quality, as well as performance and efficiency. We want to be liked for our customer orientation, the career opportunities we offer, and the entrepreneurial spirit at Merck. And lastly, we want to be respected for our values, our entrepreneurial responsibility and commitment to sustainability, as well as for our corporate culture of thinking beyond generations instead of only in quarters.
Merck is well-positioned to achieve these objectives. We will continue to work hard to create long-lasting success and a sustainable future for Merck. And we will work to deliver on our promises in 2014 and 2015 as well.
I thank you for your trust in Merck and hope that you will continue this journey with us.
Karl-Ludwig Kley
Chairman of the Executive Board
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