Leverkusen, Germany
August 29, 2006- Sales
up 5.8 percent to EUR 7,072 million
- EBITDA before special items advances 11.2 percent to EUR 1,342
million
- EBIT before special items climbs 14.1 percent to EUR 928
million
- Bayer Group targets improvement in underlying operating result
for 2006
- New restructuring program launched at
Bayer CropScience
The positive business
trend at Bayer continued in the second quarter of 2006, with
substantial increases in both sales and earnings. Sales from
continuing operations advanced by 5.8 percent to EUR 7,072
million (Q2 2005: EUR 6,686 million), due to higher sales of the
HealthCare and MaterialScience subgroups. Sales of CropScience
were slightly below the prior-year quarter. Earnings before
interest, taxes, depreciation and amortization (EBITDA) before
special items rose by 11.2 percent to EUR 1,342 million (EUR
1,207 million). “Bayer remains on a successful path both
strategically and operationally, as our gratifying
second-quarter performance shows,” commented Management Board
Chairman Werner Wenning. “Particularly in light of the long-term
optimization of our portfolio, we remain optimistic about the
Bayer Group’s future development.” For the Bayer CropScience
subgroup, Wenning announced the launch of a new restructuring
program designed to achieve annual savings of approximately EUR
300 million.
Bayer also had a very successful second quarter in strategic
terms: the acquisition of Schering AG is the largest transaction
in Bayer’s history, and the agreed divestiture of the
Diagnostics Division is fully in line with the company’s
strategy of sharpening the focus of its HealthCare business and
concentrating on human and animal medicines and consumer health
products.
Group sales in the second quarter included EUR 144 million in
revenues from the Schering business for the period June 23
through June 30, 2006. By contrast, the Diagnostics Division to
be divested to Siemens is reported as a discontinued operation.
Adjusted for currency and portfolio effects, sales of the Bayer
Group for the period April through June rose by 3.6 percent.
“We further improved the Group’s earning power as well,” Wenning
explained. In the previous
corporate structure (excluding
Schering, including Diagnostics), EBITDA before special items
rose by 7.6 percent to EUR 1,383 million in the second quarter.
The operating result (EBIT) before special items rose by 12.4
percent to EUR 958 million.
Earnings from continuing
operations (including Schering,
excluding Diagnostics) showed an even bigger improvement, with
EBITDA before special items up 11.2 percent to EUR 1,342
million, due mainly to a positive earnings trend at Bayer
HealthCare. EBIT before special items climbed by 14.1 percent in
the second quarter, to EUR 928 million (Q2 2005: EUR 813
million).
Special items in continuing operations totaled EUR 50 million in
the second quarter. After special items, EBITDA advanced by 18.8
percent to EUR 1,308 million (EUR 1,101 million), while EBIT
climbed by 24.2 percent to EUR 878 million (EUR 707 million).
Group net income rose by 11.3 percent to EUR 452 million (EUR
406 million). Benefiting from the positive business trend, gross
cash flow improved by 11.2 percent to EUR 964 million (EUR 867
million), while net cash flow from continuing operations came in
EUR 85 million below the prior-year quarter, at EUR 895 million,
due to an increase in working capital. Net debt totaled EUR 19.9
billion on June 30, 2006, the EUR 14.2 billion increase compared
to March 31, 2006, being mainly due to the Schering acquisition.
Bayer also achieved a gratifying operating performance in the
first half of 2006, with sales from continuing operations up 8.5
percent to EUR 14,188 million (H1 2005: EUR 13,072 million).
EBITDA before special items increased by 8.3 percent to EUR
2,952 million (EUR 2,727 million), while EBIT before special
items advanced by 10.1 percent to EUR 2,133 million (EUR 1,937
million). First-half net income remained on a par with the same
period of 2005, at EUR 1,052 million.
Bayer HealthCare remains primary
growth engine
Of the three subgroups, Bayer HealthCare again achieved the
strongest growth in sales and earnings, as it did in the first
quarter. Sales from continuing operations rose by 12.7 percent
to EUR 2,257 million. The Pharmaceuticals segment grew sales by
a substantial 20.2 percent, to EUR 1,188 million. This figure
contains EUR 144 million in Schering revenues between June 23
and June 30, 2006. Adjusted for currency and portfolio effects,
sales were up by 9.0 percent. Sales of the new Consumer Health
reporting segment increased by 5.3 percent to EUR 1,069 million.
This segment comprises the Consumer Care Division, which markets
non-prescription medicines, along with the Diabetes Care and
Animal Health divisions.
Underlying EBITDA of Bayer HealthCare in the second quarter
advanced by 27.4 percent to EUR 470 million, including EUR 30
million from the acquired Schering business.
Market conditions for Bayer
CropScience remain difficult
Second-quarter sales of the Bayer CropScience subgroup declined
by 1.6 percent to EUR 1,578 million in a difficult market
environment. The Crop Protection segment achieved sales of EUR
1,269 million, down 3.7 percent. While sales of the Herbicides
and Seed Treatment units came in at around the prior-year level,
business in the Insecticides and Fungicides units declined. The
lower insecticide sales were due in part to the divestiture of
some older active ingredients in 2005. The decline in fungicide
sales in the second quarter resulted partly from advance demand
in the first quarter in the United States and partly from the
dry weather in many parts of Europe. By contrast, sales of the
Environmental Science, BioScience segment advanced by a pleasing
8.0 percent to EUR 309 million.
EBITDA before special items of Bayer CropScience posted a
year-on-year improvement of 11.2 percent to EUR 368 million,
thanks mainly to the effectiveness of cost-containment and
efficiency-improvement programs. First-half underlying EBITDA
rose by 2.5 percent to EUR 919 million.
Strong polyurethane sales at
Bayer MaterialScience
The positive business trend in the Bayer MaterialScience
subgroup continued in the second quarter of 2006, with sales
increasing by 5.4 percent to EUR 2,883 million. Business growth
was mainly volume-driven, with the Polyurethanes and the
Coatings, Adhesives, Sealants business units the main
contributors. Underlying EBITDA of the Bayer MaterialScience
subgroup came in at EUR 489 million, up 3.2 percent from the
prior-year period. A mainly price-related earnings decline in
the Materials segment was more than offset by a gratifying
increase in the Systems segment.
Good growth in North American
business
A major portion of Bayer’s second-quarter sales increase was
achieved in the North America region, where business was up by
7.9 percent, or EUR 140 million, to EUR 1,908 million. Growth
was strongest in Pharmaceuticals. In Europe, Group sales grew by
4.0 percent to EUR 3,169 million, with particularly pleasing
gains in the Pharmaceuticals and Systems segments. Sales in
Germany rose by 6.0 percent to EUR 1,126 million, but dipped by
0.6 percent year on year when adjusted for portfolio changes. In
the Asia/Pacific region, sales grew by 4.2 percent to EUR 1,136
million, with business in China expanding by 22 percent. Sales
in the Latin America/Africa/Middle East region moved ahead by
10.0 percent to EUR 859 million.
Positive business outlook for the
full year 2006
For the previous corporate
structure (excluding Schering, including Diagnostics), Bayer
fully confirms its guidance of a slight increase in underlying
EBIT and EBITDA and an underlying EBITDA margin of 19 percent
for the full year 2006.
Wenning gave an even more optimistic outlook for continuing
operations, predicting higher underlying EBITDA and underlying
EBIT in 2006, even without the inclusion of Schering. The
corresponding figures for 2005 are underlying EBITDA of EUR
4,787 million and underlying EBIT of EUR 3,158 million
(excluding Diagnostics). In addition, Bayer expects the acquired
Schering business to contribute some EUR 600 million to Group
EBITDA before special items in the second half of 2006, before
non-cash charges arising from the step-up of Schering
inventories for the first-time consolidation. This adjustment
ensures comparability with future periods.
The Group is also raising the 2006 earnings targets for Bayer
HealthCare, with underlying EBIT from continuing operations
(excluding Schering) now expected to grow by about 20 percent,
compared to previous guidance of more than 10 percent. The
corresponding underlying EBITDA margin is predicted to increase
to around 20 percent.
Bayer currently views the market environment for its
MaterialScience business as positive despite a significant rise
in raw material costs. Business so far in 2006 and the prospects
for the second half of the year are ahead of expectations.
Against this background, BMS now plans to achieve underlying
EBIT and EBITDA for the full year on a par with the outstanding
2005 level.
Bayer CropScience predicts a decline in sales for the full year
2006. Due to the difficult market conditions, the subgroup now
assumes that it will be unable to match the previous year’s
underlying EBITDA margin.
Bayer
CropScience plans to achieve savings of
roughly EUR 300 million
To improve its cost structures, the
Bayer CropScience subgroup is initiating a new program of
measures, due to be largely completed by 2009 and designed to
achieve annual savings of roughly EUR 300 million. The principal
aim of the new efficiency program is to sustainably shrink the
company’s infrastructure and process costs in areas such as
manufacturing, supply chain, development and marketing. About
half of the planned savings are to be achieved through
consolidation of production sites, optimization of procurement
activities and a reduction in personnel costs.
As part of the program, a number of formulation and production
sites worldwide will be either restructured or closed, and a
total of approximately 1,500 positions are to be eliminated,
primarily in North America, through the end of 2009.
In this connection
Bayer CropScience anticipates special cash charges of some EUR
330 million along with write-downs of about EUR 120 million.
These amounts will be reflected mainly in the 2007 and 2008
financial statements. Bayer CropScience expects the measures to
be accretive to EBIT after special items starting in 2008. |