INSIGHT: Liquid crystal jitters won't hurt Merck

25 April 2007 17:09  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--Merck KGaA’s liquid crystal business growth stumbled in the first quarter but the company still believes it can add as much as 20% to sales in 2007 compared with 2006.

The flat screen television and display market continues to hold out strong potential for suppliers in chemicals.

Merck’s as reported liquid crystal sales numbers – down 11.7% – represent a mix of a negative currency translation and the impact of a divestment as well as the underlying business being off 0.9% compared with the similar period of 2006. Operating profits were down 7.3% at €113.2m.

The year got off to an inauspicious start but Merck says that organically revenues were in-line with the very strong first quarter of last year. If you look around the business and at the market environment for the big flat screen television makers also you can see growth holding up.

Glass and electronics makers have been affected by a worse than expected seasonal slowdown in the flat panel TV business but still expect  a strong second half.

Merck subscribes to that view talking of a positive full year contribution from the business given strong demand growth for its products among TV makers in Japan and South Korea.

Merck will suffer from negative currency impacts in the second quarter and beyond but continues to look to strong top line growth.

It does not appear overly enthusiastic in its projections either. Flat screen LCD TV growth could be as high as 40% this year. Sticking to a 20% ballpark figure for the growth of display ingredients demand – used in flat panel displays as well as televisions – is being conservative.

The company produced a 54.8% return on sales in the business in the quarter. The return on capital employed remained at what the company called “a robust, high level” of 50.1%.

Merck showed on Wednesday that it will be challenged in 2007 to absorb the Serono acquisition, but that the driving force for the company has changed following its takeover of this large biotechnology business.

Total revenues in the first quarter were up 37% at €2,17bn, mainly because of first time consolidation of the new business. Operating profits, excluding Serono-related amortisation charges were 11% ahead at €321m.

Merck Serono sales were affected in the quarter by first time consolidation, Merck says, but organically its pharmaceuticals sales growth was 14% despite some generic competition. Its flagship products Rebif and Erbitux continue to grow strongly. Erbitux sales were 48% higher.

The company reported a quarterly net loss of €6m compared with a first quarter 2006 profit of €184.4m. It has encouraged investors, nevertheless, by suggesting that it could produce a positive net result for the full year.

ICIS Copyright © Reed Business Information 2009

Author: Nigel Davis
+44 20 8652 3214

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