Annual Report 2014 Annual Report 2014
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Review of forecast against actual business developments

In the Annual Report for 2013, Merck forecast slight organic sales growth for the Merck Group in 2014, mainly driven by the Merck Millipore and Consumer Health divisions. For EBITDA pre one-time items in 2014, a value at the 2013 level was expected. This assumed that significantly reduced royalty and license income, higher investments in research and development activities in the Biosimilars business unit and expected negative foreign exchange effects could be compensated for by the positive effect resulting from the implemented efficiency measures. Business free cash flow was forecast to decrease slightly owing to further imminent investments in strategic growth projects.

In the event of the successful acquisition and consolidation of AZ Electronic Materials as of the second quarter of 2014, Merck had forecast a moderate increase in Group sales and EBITDA pre one-time items as well as a slight improvement in business free cash flow for 2014, compared with 2013.

Since Merck was able to successfully complete the acquisition of AZ Electronic Materials and the first-time consolidation of the business as of May 2, 2014, the forecast assuming the acquisition of AZ Electronic Materials is used for the following comparison.

Regarding the forecast of slight organic sales growth in the Annual Report for 2013, Merck showed moderate organic sales growth of 4.0 % in 2014. This was mainly attributable to the organic sales developments of Merck Serono and Performance Materials, which exceeded expectations. The Merck Group’s organic sales growth was reduced by negative foreign exchange effects amounting to – 1.8%. However, owing to the appreciation of the U.S. dollar and important Asian currencies in the fourth quarter, negative foreign exchange effects were not as pronounced as expected. Due to the acquisition of AZ Electronic Materials and the associated positive acquisition effect of 3.3 %, Merck achieved overall sales growth of 5.5 % in the actual course of business and thereby fulfilled its forecast of a moderate increase in sales.

Thanks to stable sales of the drug Rebif® and organic growth in all other key franchises, Merck Serono achieved organic growth of 3.6 %. Assuming that sales of Rebif® would decline, the division still expected stable organic sales at the beginning of 2014. The Performance Materials division achieved organic sales growth of 4.1 % due to slightly higher sales than expected in the Liquid Crystals business unit, as well as the good performance of the Advanced Technologies business unit. Only slight organic growth had been forecast. As a result of the positive acquisition effect arising from the acquisition of AZ Electronic Materials, the Performance Materials division was able to significantly increase sales overall as forecast. The Consumer Health and Merck Millipore divisions achieved organic sales growth of 5.4 % and 4.5 % respectively in accordance with the corresponding forecasts.

As forecast, EBITDA pre one-time items ot the Merck Group, which amounted to € 3,388 million in 2014, increased moderately in comparison with 2013, particularly as a result of the acquisition of AZ Electronic Materials. EBITDA pre one-time items of the Merck Serono division declined slightly by -1.3 % as expected. This was mainly attributable to lower royalty and license income from Humira®, as well as the loss of royalty and license income from Avonex® and Enbrel®. The Consumer Health division did not achieve the forecast of a moderate increase in EBITDA pre one-time items due to higher marketing and selling expenses, showing a slight decline of 1.7 % to € 169 million. In line with the forecast, the Performance Materials division posted a significant increase in EBITDA pre one-time items to € 895 million, due to the integration of the AZ Electronic Materials business. Likewise as forecast, the Merck Millipore division posted a slight increase in EBITDA pre one-time items to € 659 million thanks to moderate organic sales growth. EBITDA pre one-time items of Corporate and Other showed an improvement of 15.5 % to € – 166 million particularly as a consequence of slightly higher gains from currency hedging, thereby achieving a more positive result than expected.

Declining by – 12.0 % compared with 2013, the development of the Merck Group’s business free cash flow to € 2,605 million fell short of forecasts. As expected, the decrease at Merck Serono was caused by the initiation of further investments in growth projects, as well as lower EBITDA pre one-time items. In the other divisions, the increase in inventories and trade accounts receivable was primarily responsible for the deviation.

Review of forecast against actual business developments in 2014


Show table
      Guidance for 2014 provided in  
  Actual
results
2013
Forecast 2014 in Annual Report 2013 Q1 / 2014 Interim Report Q2 / 2014 Interim Report Q3 / 2014 Interim Report Actual results 2014
€ million
             
Merck Group            
Sales 10,700 moderate increase,
slight organic growth
€ 10.9 – 11.1 billion € 10.9 – 11.1 billion € 11.0 – 11.2 billion 11,291 (+ 5.5 / + 4.0 % org. / + 3.3 % acquisition)
EBITDA pre
one-time items
3,253 moderate increase € 3.3 – 3.4 billion € 3.3 – 3.4 billion € 3.3 – 3.4 billion 3,388
(+ 4.1 %)
Business
free cash flow
2,960 slight increase € 2.7 – 2.8 billion € 2.7 – 2.8 billion € 2.7 – 2.8 billion 2,605
(– 12.0 %)
Earnings per share
pre one-time items1
€ 4.39 € 4.50 – 4.75 € 4.50 – 4.75 € 4.50 – 4.75 € 4.60
(+ 4.8 %)
Merck Serono            
Sales2 5,688 organic stable on a comparable basis organic stable slight organic growth slight organic growth 5,783 (+ 1.7 % / + 3.6 % org.)
EBITDA pre
one-time items2
1,855 slight decline on a comparable basis € 1.75 – 1.85 billion € 1.75 – 1.83 billion € 1.77 – 1.83 billion 1,831
(– 1.3 %)
Business
free cash flow2
1,787 moderate decline on a comparable basis € 1.5 – 1.6 billion € 1.5 – 1.6 billion € 1.5 – 1.6 billion 1,577
(– 11.7 %)
Consumer Health            
Sales2 742 moderate increase on a comparable basis moderate organic growth moderate organic growth moderate organic growth 766 (+ 3.2 % / + 5.4 % org.)
EBITDA pre
one-time items2
172 moderate increase on a comparable basis € 170 – 180 million € 170 – 180 million € 170 – 180 million 169
(– 1.7 %)
Business
free cash flow2
172 slight increase on a comparable basis € 150 – 170 million € 150 – 170 million € 150 – 160 million 124
(– 28.1 %)
Performance Materials            
Sales 1,642 significant increase slight organic growth slight organic growth slight organic growth 2,060 (+ 25.4 % / + 4.1 % org. / + 22.8 % acquisition)
EBITDA pre
one-time items
780 significant increase € 830 – 880 million € 850 – 880 million € 860 – 880 million 895
(+ 14.8 %)
Business
free cash flow
788 significant increase € 720 – 770 million € 720 – 770 million € 720 – 770 million 700
(– 11.2 %)
Merck Millipore            
Sales 2,628 slight increase moderate organic growth moderate organic growth moderate organic growth 2,682 (+ 2.1 % / + 4.5 % org.)
EBITDA pre
one-time items
643 slight increase € 640 – 670 million € 640 – 670 million € 640 – 670 million 659
(+ 2.5 %)
Business
free cash flow
494 stable € 460 – 490 million € 460 – 490 million € 460 – 490 million 419
(– 15.2 %)
Corporate and Other            
EBITDA pre
one-time items
– 197 stable € – 170 – – 200 million € – 160 – – 190 million € – 160 – – 190 million – 166
(- 15.5 %)
Business
free cash flow
– 281 ~ € – 240 million € – 200 – – 230 million € – 200 – – 220 million – 215
(- 23.7 %)
1
Based on the number of shares following the share split, which was approved by the Annual General Meeting on May 9, 2014.
2
Previous year’s figures have been adjusted, see “The Merck Group” in the Group management report.

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